When you’re running a business, cash flow is everything. And depending on what sort of company you have, it’s likely that you need financing to get your product to market, to scale your operations, or just manage your working capital cycle. Borrowing money is typically how companies do this, in lieu of personal investment – which makes it strange to see how many don’t consider the cost of that financing over the long term.
When we buy a home as an individual, we know that the better our credit score, the better interest rate we’re going to get. And through a little optimization, we can bring that down significantly and save ourselves huge amounts of money over the lifetime of our mortgage.
The principle is the same when it comes to a business credit score and if you just take a few steps to set this up right, it can have a radical impact on your cash flow and your long-term profitability.
What is a Paydex Score?
Your Paydex score is a metric that measures the risk that your company might default on its debt or miss payments on it within the next 12 months. The way that the score is calculated is by looking at whether your business pays its bills on time. The earlier you pay your bills on a consistent basis, the better your Paydex score.
The score is administered by a credit bureau by the name of Dun and Bradstreet, and typically the benchmark score that you’re looking for is 80 and over. So if you find yourself in that range, you’re in good shape. And the good news is that with the right methodology and strategies, you should be able to get there within a couple of weeks.
Why Does It Matter?
A good business credit score opens up opportunities for your business by giving you access to better financing options at better rates. This can be anything from a company credit card or overdraft all the way to a larger business loan. Banks and financial institutions will use your credit score as the key criteria to determine what deal they offer you – so a little effort here goes a long way.
It’s also a good way to monitor your own internal business structures – as it offers an objective view of how you’re managing your liabilities over time. This can help you identify problems early so that you can take proactive action to fix them. Your business credit score is a good proxy for the financial strength of your organization.
When you consider that this value is compounded over time, it becomes clear that this is something to focus on. A little bit of effort upfront will deliver long-term savings that you can then reinvest into your business.
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Hopefully, you can see just how a good business credit score can be an invaluable asset for your company as it seeks to raise funding and minimize the cost over the long term. There are a few things that you can do in a couple of weeks that actually have outsized impacts for years to come. This is something you should definitely pay attention to.
If you’re interested in learning more about how to get to a good Paydex score, be sure to get in touch. I’ve worked with dozens of clients to help them improve this part of their business and I’d love to hear from you to see how I can help!