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  • Sunday, March 26, 2017

D&B Rating

One of the most useful tools in deciding the credit terms you offer !

At the heart of the information contained in a Business Information Report is the D&B Rating. This is a coded guide to the risk associated with doing business with a specific company.

Example Part 1 : D&B Rating 5A 4

The Dun and Bradstreet Rating consists of two parts :

(a) Financial Strength Indicator (shown in the example as 5A)
(b) Condition Code or Risk Indicator (shown in the example as 4)

Financial Strength Indicator

The Financial Strength Indicator is calculated using either the Net Worth or Issued Capital of the Subject Company. If both figures are available, then the Net Worth is always used to calculate the Financial Strength.

Based on Net Worth Based on Issued Capital Figure
5A Financial Strength of 60 + million 5AA Financial Strength of 60 million +
4A Financial Strength of 25 - 60 million 4AA Financial Strength of 25 - 60 million
3A Financial Strength of 12 - 25 million 3AA Financial Strength of 12 - 25 million
2A Financial Strength of 2.5 - 12 million 2AA Financial Strength of 2.5 - 12 million
1A Financial Strength of 1.2 - 2.5 million 1AA Financial Strength of 1.2 - 2.5 million
A Financial Strength of 600,000 - 1.2 million AA Financial Strength of 600,000 - 1.2 million
B Financial Strength of 345,000 - 600,000 BB Financial Strength of 345,000 - 600,000
C Financial Strength of 175,000 - 345,000 CC Financial Strength of 175,000 - 345,000
D Financial Strength of 120,000 - 175,000 DD Financial Strength of 175,000 - 345,000
E Financial Strength of 60,000 - 120,000 EE Financial Strength of 60,000 - 120,000
F Financial Strength of 35,000 - 60,000 FF Financial Strength of 35,000 - 60,000
G Financial Strength of 15,000 - 35,000 GG Financial Strength of 15,000 - 35,000
H Financial Strength of 0 - 15,000 HH Financial Strength of 0 - 15,000
Other codes used:
  • N - Financial Strength is negative
  • O - Financial Strength is undisclosed
  • NB - New Business less than 2 years old
  • NQ - Ceased Trading

The Condition Code or Risk Indicator

This is calculated by taking into account key items within the Business Information report which are used to predict the likelihood of a business failure.

Risk
Indicator
Probability of failure Guide to interpretation
1 Minimal risk Proceed with transaction - offer terms required
2 Low risk Proceed with transaction
3 Greater than average risk Proceed with transaction but monitor closely
4 Significant level of risk Take suitable assurances before extending credit
- Insufficient information to assign a risk indicator No public information or D&B proprietary information available to indicate trading activity

The Risk Indicator in more detail :

  • Strong Condition ( 1 )
    This is assigned to companies of undoubted credit standing and financial strength. The risk associated with being a creditor of these concerns would be negligible or zero, the concern which pays bills promptly or discount.
     
  • Good Condition ( 2 )
    This is assigned to financially sound concerns, having no known record of bad payments and paying suppliers quickly. The risk of being associated with being a creditor of these concerns would be low and they would be classified as an ordinary trade risk.
     
  • Fair Condition ( 3 )
    This would be assigned to concerns believed to be financially sound but with a history of slow payments or some losses or working capital deficit. The risk associated with being a creditor of these concerns is higher and would be classified as potentially slow payers or fair trade risk.
     
  • Poor Condition ( 4 )
    This would be assigned to concerns of known financial weakness. A number of years losses, higher than normal working capital deficit, a negative tangible net worth which is worsening, court judgments, bad payments etc. This risk is associated with being a creditor of these concerns is high or significant.
     
  • Undetermined ( - )
    This is assigned to concerns where there is insufficient information available to express any opinion on the condition, financial soundness or payment history of the concern. A concern with no telephone number will also be assigned a condition.

Example Part 2: D&B Rating 5A 4

Thus, the example rating shows a Company with a Financial Strength of 60 + million (probably based on Net Worth), in a poor condition with a significant level of risk. The supplier is advised to take suitable assurances before extending credit.