Many large companies may have minimum requirements they expect all their suppliers to maintain, else they may terminate certain suppliers’ contracts. Most large companies keep these requirements relatively private, but there are best practices that can be followed to help ensure you don’t receive a notice that you may be dropped as a supplier.
In order to track the financial wellbeing of their suppliers, large companies may use information contained within D&B® business credit reports. D&B business credit reports may contain information that large companies may rely on to help ensure that their suppliers are financially healthy. It’s in their best interest to monitor their suppliers, since a supplier that suddenly ceases operation or becomes inactive may cost a large company significantly in terms of lost sales and wasted labor, and cause delays in production while another supplier is found.
Though there are other scores and ratings within your D&B business credit report that should be monitored and maintained, these scores and ratings are usually the most relevant to suppliers:
- PAYDEX®: Your business’s PAYDEX score indicates how likely your business is to pay its bills on time. Though this score may not seem relevant for suppliers (suppliers typically do not pay the companies they supply), it is anything but. A low PAYDEX score may indicate poor cash flow, or incompetence within the business, and large companies often want stable businesses for suppliers. Typically a PAYDEX score at or above 70 is considered strong. Three Trade References* are required to establish a PAYDEX score. Adding trade references to your D&B business credit report requires CreditBuilder.
- Supplier Evaluation Risk (SER) Rating: Pertaining directly to your business’s ability as a supplier, the SER Rating attempts to predict how likely it is that a business will cease operations or become inactive within 12 months. Ascending from 1 to 9, with 1 being a low chance of becoming inactive, and 9 being a high chance, this is the rating many large companies may review on a frequent basis to ensure they’re not putting themselves at risk by working with you. Large companies may have different minimum requirements for a suppliers’ SER Ratings, therefore trying to keep this score low may be beneficial. This article does a good job of explaining how you may be able to impact your SER Rating.
By no means should suppliers ignore the other scores and ratings within their D&B business credit report, but striving to build a healthy PAYDEX score and SER Rating may go a long way to helping to improve your business credit report as a whole.
Another best practice is transparency. If your business encounters sudden financial hardship and you know your business credit scores and ratings may decline, inform the companies you supply and see what can be done about it. If they know you’re aware of the situation and actively striving to correct it, it may increase your credibility with such companies, and their trust in you.
*Trade References will be added subject to D&B® verification and acceptance. Please see http://www. dandb.com/glossary/trade-references/ for eligibility, process and other information regarding Trade References.