What the Dunn and Bradstreet rating means for your business
Each edition of Vetrepreneur magazine includes a checklist for corporate and government contracting. From time to time, I take a stroll down memory lane and review this checklist to ensure that I am compliant with the regulations and to review other tips that I may have forgotten.
In the registration section of the checklist, point number 10 mentions to register your company with Dun & Bradstreet (D&B). More specifically, this refers to obtaining a Data Universal Numbering System or D-U-N-S® number for your newly-formed business.
Created in 1962, the D-U-N-S® is D&B's copyrighted, proprietary means of identifying business entities on a location-specific basis. The D-U-N-S® Number also "unlocks" a wealth of value-added data associated with that entity, including the business name, physical and mailing addresses, trade styles ("doing business as"), principal names, financial, payment experiences, industry classifications (SICs and NAICS), socio-economic status, government data and more.
What’s in it for me?
So what does this corporate-speak mean to a small business? I think the most important aspect of the above paragraph is “payment experiences.” Credit is the life blood of a small business and common conjecture is that your D&B rating is the critical key factor to obtaining business credit from banks and vendors. Or is it?
I remember registering for Three Wire’s D-U-N-S® number when starting operations in 2006. At that point, registering was just another administrative task for us on our way to obtaining our first federal government contract. As a new business, it appeared to be just a formality amongst all the other registration requirements such as the Central Contractor Registry (CCR), Employer Identification Number (EIN), etc.
In the four years since our company’s inception, I do have a vague memory about reviewing our D&B profile, but as the CEO of a fast-growing company, I never spent enough time to really understand how to maximize our rating – until now.
Breaking the Code
I don’t contend to be a D&B Ratings expert and this column is certainly not the place to get into the weeds on how to improve your rating. But, as with most things financial, a simple concept such as a D&B Rating Summary can get very complex, very quickly.
Basically, the D&B Ratings Summary is three-place alphanumeric (e.g., 2R3) which gives your vendors/creditors a quick snapshot of your company’s employee size and credit worthiness. In this example, the 2R refers to the employee business size (less than 10 employees) and the “3” (Composite Credit Appraisal) is a credit measure (in this case “fair”).
Based on my conversations and research with two small business bankers (one from a large national bank and one from a Washington, D.C. regional bank) and a sales representative from D&B, below are my top tips to maintain and improve your company’s D&B Rating Summary:
D-U-N-S Due Diligence
Review your D&B report annually (this is free). Be sure to review the Operations section and update the number of employees (remember this impacts your Rating Summary). Also be sure to update the location section. Savvy reviewers of your profile will take a close look at your office location to see if you are still working from your house or if you’re in a retail office environment. This can influence how a creditor/vendor views the professionalism and viability of your business operations.
Do not post your financials (e.g., profit & loss, balance sheet), Why should you allow competitors to ascertain your financial position? If you’re seeking credit from a vendor or bank, they’ll ask for recent financial reports anyway.
If your current Rating Summary is poor, don’t panic. My conversations with bankers and vendors indicate that the D&B Rating Summary is just one component of how they assess creditworthiness of a company. The regional banker that I spoke with places more emphasis on recent company financials, an aggressive accounts receivables collection history, owner collateral, and the company’s vision and direction.
Subhead: Other Tools to Consider
Consider using D&B’s small business tools such as DNBi SelfMonitor (https://mycredit.dnb.com/monitor-business-credit/). According to D&B, this product allows you to “add credit references to your file to enhance or start establishing your company’s D&B PAYDEX score and the predictiveness of your other D&B scores and ratings.” D&B will call these vendors (using on and offshore call centers) to verify and confirm the information you have provided. Note that your vendors must be registered with D&B as an “auto-reporter” for this process to work. So check with your vendor’s financial department to make sure they are willing to participate in this D&B program before plunking down the $449 that D&B is charging for this service.
In summary, your D&B rating is important, but not the only piece in the small business credit puzzle. Your creditors/vendors will most likely place an equal weight on your character, collateral, and current business financial reports.
So be proactive and check out your D&B rating. Better yet, call your banker and invite him to lunch. At your meeting, explain to him in five PowerPoint slides or less how you are going to blow out your 2010 revenue number. And then, when that big deal comes in, and you need credit, you will be ready to rock.
Good selling in 2010!
To learn more about Dunn & Bradstreet ratings visit www.navoba.com/dnbratings
If your current Rating Summary is poor, don’t panic. My conversations with bankers and vendors indicate that the D&B Rating Summary is just one component of how they assess creditworthiness of a company.”