D&B's Financial Stress Score | Glossaries from AllBusiness.com
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D&B's Financial Stress Score

What is the Financial Stress Score?

D&B's Financial Stress Score helps you predict a business's potential for failure. It is designed to predict the likelihood that a company will obtain legal relief from creditors or cease operations without paying all creditors in full over the next 12 months. The score uses the full range of D&B information, including financials, comparative financial ratios, payment trends, public filings, demographic data and more to determine the risk of doing business with your company.
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How does D&B define Financial Stress?

D&B created its Financial Stress scoring system to predict the likelihood that a company will experience financial stress based on the definition that a financially stressed company is one that:
  • Ceased operations following assignment or bankruptcy
  • Ceased operations with loss to creditors
  • Voluntarily withdrew from business operation leaving unpaid obligations
  • Is in receivership, reorganization, or has made an arrangement for the benefit of creditor

Note: Voluntary discontinuance involving no loss to creditors is not defined as financially stressed.
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What is the Financial Stress Scoring System?

The Financial Stress Score System classifies risk information in three ways:
  1. A Class The best choice for an at-a-glance risk assessment. The Class system segments the businesses in the D&B database into five distinct risk groups. The class indicates that this firm shares some of the same business and financial characteristics of other companies with this classification. It does not mean the firm will necessarily experience financial stress. Class Scale: 1 to 5: (1 = Lowest Risk, 5 = Highest Risk)
  2. A Percentile A granular view providing a more specific classification of risk. The percentile shows you where a company falls among businesses in the D&B information base, and is most effectively used to rank order a portfolio from Highest to Lowest Risk of business failure. Percentile Scale: 1 to 100: (1 = Highest Risk, 100 = Lowest Risk)
  3. A Score The most granular view providing a more specific classification of risk. The score provides a direct relationship between the score and the level of risk and enables more granular cutoffs typically used in a more automated decision-making process. Score Scale: 1,001 to 1,875: (1,001 = Highest Risk, 1,875 = Lowest Risk)

    Risk Class Score Range Percentile Range
    (approx)
    % Within Range
    (approx)
    Failure Rate
    1 1570 - 1875 95-100 6% 0.03%
    2 1510 - 1569 69-94 26% 0.09%
    3 1450 - 1509 34-68 35% 0.24%
    4 1340 - 1449 2-33 32% 0.84%
    5 1001 - 1339 1 1% 4.70%

    What does it mean if a stress score is "Zero?"
    Financial Stress scores are not calculated for those businesses designated as "Discontinued at This Location," "Open Bankruptcy" or "Higher Risk ". These records are automatically assigned a score of zero (0).

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What are Risk Categories?

Risk categories were created to make it easier to translate the Financial Stress Class into understandable risk groups:

Classes 1–2: Low Risk of financial stress
Class 3: Moderate Risk of financial stress
Classes 4–5: High Risk of financial stress

Based on changes to your Financial Stress Class, D&B takes a proactive approach to notify you when a change in Class is bringing you closer to a different risk category.

As an example, if your Financial Stress Class declined from 2 to 3, you would receive a message within your alert that you are approaching a High Risk category (Class 4 or 5). That is, one more decline in class (from 3 to 4) would categorize you as High Risk.
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What influences my Financial Stress Score?

Your Financial Stress Score reflects past payment performance, demographic and financial information, and outstanding suits and liens.

Here are some of the elements used in creating the Financial Stress Score: Payment Behavior
  • Number of payment experiences
  • Percent of satisfactory and unsatisfactory payment experiences
  • Dollar amount of satisfactory and unsatisfactory payment experiences
Demographics
  • Ownership of facility
  • Years in business
  • Total number of employees
  • Industry and region
Public Records
  • Number and dollar amount of suits, liens, judgments
  • Total number of UCC filings
Financials
  • Receivables, payables and cash
  • Current liabilities, current assets, working capital
  • Net worth

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Who uses the Financial Stress Score and for what purposes?

Potential business partners, banks and other financial institutions use the Financial Stress Score for various risk based decisions including:
  • Determining whether you have the financial resources to handle an increased credit line
  • Assessing whether you will be around for the long term (as a customer or supplier)
  • Developing risk-based pricing requirements such as:
    • Interest rates
    • Insurance premiums
    • Credit limits and payment terms
    • Discounts

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How can I improve my Financial Stress Score?

You can improve your Financial Stress Score by addressing those areas of your business that most influence the score. Here are some steps you can take:
  1. Review your D&B report and make sure it is complete and up to date with the most current and accurate information:
    • To update general information and company financials, please go to https://eupdate.dnb.com/
    • If you have questions about your report, please call us at 1-800-234-DUNS (3867).
  2. Make every effort to pay your bills on time – your payment behavior has great influence on your score.
  3. Add more payment experiences to your D&B credit file - to learn how, please call a D&B Customer Service representative at 1-800-234-DUNS (3867).
  4. To the extent possible, quickly resolve open legal matters (i.e. suits and liens).
  5. Improve your financials by:
    1. Improving cash flow and cash on hand
    2. Collecting payments from customers on time
    3. Improve working capital
    4. Increase your net worth

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