Do you have slow or late payments reported on your Dun & Bradstreet business credit file, or are you seeing them in a partner’s file? These types of negative payment experiences can impact a business’s credit scores and ratings, which may affect that company’s ability to get contracts, loans, trade credit, investors, and more. It may also affect whether and how you want to work with that business.
What is slow pay?
“Slow pay” is the designation used for companies that pay their bills past terms. This can also be referred to as “slow payments,” “delinquent payments,” or “late payments.” The most common payment term is known as net 30, where the payment is due in full 30 days after purchase or delivery. If the company pays the bill in 35 days, that’s five days past due, so its DBT (days beyond terms) is five. In a company’s Dun & Bradstreet business credit file, how quickly a company pays its bills is reflected in the D&B PAYDEX® Score and in the Trade Payments section of its credit report.
How does the slow-pay reporting process work?
A business credit file may show a company having late or slow payments if the businesses the company works with have reported such payment behaviors to Dun & Bradstreet.
Slow and late payments can affect business credit scores and ratings. Lenders, suppliers, and vendors may view Dun & Bradstreet scores and ratings when making decisions about whether or not to work with a company, extend business credit, offer a loan, or provide favorable terms and conditions.
Who is reporting this payment information?
Companies reporting to Dun & Bradstreet remain anonymous. Participants in the Global Trade Exchange Program report all of their receivables monthly regardless of whether it is a negative or positive payment experience. However, not all companies participate in the Global Trade Exchange Program. Those companies that do not participate can be submitted to Dun & Bradstreet as Manual Trade References* for review, verification, and possible acceptance using the CreditBuilder™ product,
How do slow payments affect a business credit file?
Slow payments can affect business credit scores and ratings such as the D&B PAYDEX® Score. Continual slow or late payments could indicate to vendors, suppliers, or lenders that a company may not pay them on time and in terms or even at all.
The PAYDEX is Dun & Bradstreet’s unique dollar-weighted numerical indicator of how a firm has paid its bills, based on up to 875 most recent payment experiences reported to Dun & Bradstreet by various vendors. The PAYDEX Score ranges from 1 to 100, with higher scores indicating better payment performance. Use this key to help you interpret the PAYDEX.
|70||15 Days Beyond Terms|
|60||22 Days Beyond Terms|
|50||30 Days Beyond Terms|
|40||60 Days Beyond Terms|
|30||90 Days Beyond Terms|
|20||120 Days Beyond Terms|
You can manually submit trade references through the CreditBuilder product for Dun & Bradstreet's review, verification, and possible acceptance. Vendors that you submit must provide certain necessary information in order to be added as trade references – if the vendor does not respond or provide this information, your reference cannot be added. If the payment experiences provided by the trade reference is added, they may improve or lower your scores and ratings, or they may not impact your scores and ratings at all.
With CreditBuilder from Dun & Bradstreet, a company can manually submit Trade References not currently reporting to Dun & Bradstreet for inclusion to its business credit file to help impact its scores and ratings. Manual Trade References are verified by Dun & Bradstreet and adding unreported payment experiences can help give a more accurate picture of a company’s payment history.
How do I avoid being paid late and therefore paying my vendors late?
For many businesses, dealing with late payments is an all too familiar – and frustrating – experience. That’s because slow payments can leave a business with weak cash flow and in credit purgatory. Push too hard trying to collect and you might damage a profitable business relationship. But if you decide not to press the issue firmly, you may end up sharing another company’s financial burden.
When managing risk stemming from slow payments, you should first realize that there are typically two different types of partners – ones that will eventually pay and ones that may never pay their bill. The first type can be managed, but it’s up to you to determine if you can afford to work with them. The latter should be avoided if possible. You may not be able to eliminate slow-payment problems, but you can certainly better manage the risk. Here are four tips that can be helpful for small businesses:
1. Start with an ounce of prevention.
Consulting a business credit report isn’t just useful for helping decide whether or not to work with a company. It’s also a great way to help evaluate credit risk in terms of slow-paying customers. That’s because customer credit data, when properly compiled and analyzed, can help predict potential slow-payment scenarios well before they happen.
Bonus tip: Don’t treat customer credit checks as a one-time affair. It’s important to conduct regular customer credit reviews, even with established customers, to help catch potential problems. A good rule of thumb is doing credit reviews annually and also when a customer seeks a major increase in its credit line.
2. Always get it in writing.
When a partner needs to modify the agreement during the course of fulfilment, these additions and changes don’t always get formalized. Business circumstances can change, employees come and go, and “informal” agreements are difficult to enforce. That’s why getting changes in writing is the single best risk management tool that any business – of any size – can have.
Bonus tip: Whatever else the agreement covers, make sure that it spells out payment dates and amounts.
3. Consider Dangling a pre-payment discount carrot.
Some businesses focus on late-payment penalties: late fees, interest charges, and the like. Others, however, have discovered that discounts for paying in advance are an even more effective way to avoid late payments. One of the most common pre-payment discounts in business credit is known as 2/10 net 30, where the buyer receives a 2% discount if they pay in full on the 10th day instead of the 30th day.
Bonus tip: If a 2% pre-payment discount reduces late payment problems, then the discounts can often pay for themselves – and then some.
4. Consider a credit card backup requirement.
Some businesses can ask customers to provide a credit card as backup when they sign a purchase agreement – if a payment is late, you can bill the customer’s credit card instead. Another approach is to simply arrange for automatic credit card payments from the beginning (possibly incentivized with a discount).
Bonus tip: This tactic has its limits, especially if you’re dealing with a large corporate customer. Apply it when and where you can, and be clear and upfront about it in your terms.
You can check other companies’ business credit reports before working with them to help determine whether they will pay late. And there are tools that can help you further limit slow- or no-payment risk when extending business credit.