Sunday, March 07, 2010

Dealing with Dun & Bradstreet, Part One

Dealing with Dun & Bradstreet, Part One

As a new small business owner, one generally starts out with a great idea for a product or service, a lot of drive, and hard work. Sooner or later, however, your business, a supplier, or a customer is going to “run a Dun & Bradstreet report” to find out your company’s financial standing. This inquiry is generally generated by your customers purchasing department to make sure that the partnership will financially be able to smoothly continue, or a supplier’s credit department to ascertain if it should extend credit terms.

Its is becoming routine for your potential customer to request (from their own in house credit department) a Dun and Bradstreet report (or D & B) because they want insure that your company will be able to deliver goods and services in an ongoing business relationship in a timely manner. It is very important for many customers, who rely on “just in time” deliveries to know that their supplier is not going to be placed on credit hold and thus collapse their supply chain, perhaps shutting down their production lines. This can cause late deliveries to their own customer and an unhappy work force (who might have been sent home early do to lack of parts or production materials).

If your company is applying for trade credit from a supplier, looking up a D & B report is routine. In a medium to large company, this is usually done by a Credit Manager or Senior Credit Analyst. In a small company, it might be done by an accounts receivable clerk. In any case, the first item looked at will be the composite credit rating. The rating has two components: the Financial Rating Classification and the Composite Credit Rating.

The Financial Rating Classification is the financial size of a given company based on its Net Worth reported on its balance sheet. These ratings start at HH for a very small company to 5A for a huge company like Microsoft. This rating helps the analyst to determine a company’s ability to pay its obligations. There are other ratings but these are most routine.

The Composite Credit Rating is a measure of a company’s willingness to pay its bills. This is information is gathered from your company’s suppliers who report to Dun & Bradstreet (and very many companies do). This is a rating from 1 to 4, one being the best and four being very limited.

As a small business owner, you want to cast your company in the best possible financial light. The simplest way to start is to pay your invoices on time and when you can’t, you need to make an ally of your supplier’s credit person. These people can grant your more time to pay and might even consider the invoice paid on time if approached in the right way. The best way to do this is to be pleasant and communicate with them in a timely manner, and not wait for them to call and “collect” on the invoice.

Continued In Part Two.

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