Along with all the federal, state, and local government filings on the "starting a new business" checklist, don't forget to apply for a DUNS number. What's a DUNS number you ask? DUNS, or more accurately "D-U-N-S", stands for "Data Universal Numbering System". It's a unique nine-digit number assigned by Dun and Bradstreet, Inc. ("D&B") that identifies your business in their database. It has nothing to do with any government entity and is not required to start a business, but if you ever plan to open trade credit accounts with major vendors or suppliers, it will serve as the linchpin of that effort.
Who's Dun and Bradstreet ("D&B")? To quote D&B's Website: "Dun & Bradstreet maintains the world's largest business database containing information on more than 100 million businesses worldwide including 38 million in the United States. D&B is, by far, the leading provider of business information for credit, marketing, and purchasing decisions worldwide. Today, more than 150,000 companies of all sizes rely on Dun & Bradstreet to provide the insight they need to build profitable business relationships with their customers, suppliers and business partners."
What does that mean to you? As it relates to opening trade credit accounts, applying for certain kinds of business financing (like equipment leases), and just simply opening certain kinds of accounts, even ones that don't come with credit terms (some wireless carriers ask for your DUNS number when you open a business wireless account), these suppliers will use your DUNS number both to evaluate the creditworthiness of your business as well as to report payment experiences they have with you. In that sense, D&B acts like a clearinghouse of business credit reporting, similar to how the three big consumer credit reporting agencies compile and report on your personal credit. D&B provides other useful services to small businesses as well--more on those later...
Applying for a DUNS number, in and of itself, does nothing for your business credit. It simply establishes the "key" you'll need to start building a credit file with D&B. There are two ways to start building that credit file, both as you might expect, based on reports about your payment habits from existing suppliers: 1) almost any large company that you have an account with will automatically report on a monthly basis to D&B, and 2) you can specifically request that D&B contact your smaller non-reporting suppliers and query them on your payment history (D&B charges a small fee for the second option).
By the way, if you don't explicitly apply for a DUNS number, one will eventually be created for you whether you like it or not (unless you do business under a rock), but it's better to go ahead and apply for one to get the ball rolling.
So...you may have detected a chicken-before-the-egg problem above. If suppliers report on you when you have a trade account with them, but also use your D&B credit file in order to grant you a trade account, how does one ever get a trade account to begin with? Excellent question. The fact is, when you start a new business, you have absolutely no credit history at all, and your D&B file will reflect this. As such, it is absolutely worthless as a means for a supplier to evaluate your business creditworthiness. But there is no harm in having an "empty" D&B file (meaning an established DUNS number with the basis business information in it); in fact, even an empty file can help you establish certain kinds of accounts. But for your D&B file to really start helping you, it will take some time--time for the file to collect data (some that you can provide and some that your suppliers will provide, whether or not you have a trade credit account with them). This is just another reason to apply for your DUNS number as part of the startup checklist--the sooner you get the file started, the sooner it has the potential to start helping you.
Fair warning: If you don't have good payment habits or end up with tax or other liens, your D&B file will reflect this, which will hurt you (no difference here than what happens to your personal credit score if you consistently make late payments on your credit cards). But like I mentioned, your business will get a DUNS number assigned to it sooner or later anyway, so there's really no place to hide.
How do you apply for your DUNS number? Simple. Go to the D&B Small Business Website and click on the "Apply for a D-U-N-S Number" link. There is no charge to apply (although D&B will offer you a couple of options that do carry a fee: my recommendation is to go with the free application for now). Note: It's important that you have already completed your federal and state filings before you apply for your DUNS number--D&B will ask for some of that information and I'm pretty sure they also verify your filing status with your state. After you apply, it usually takes a few days, and D&B will respond with your newly assigned DUNS number. At that point, there is nothing else you need to do (except always supply your DUNS number on any commercial account application that asks for it, even if you are not applying for credit or are personally guaranteeing the credit line).
I mentioned that D&B provides other services. Some of these may be useful to your business, both short and long term. Among other things, they provide a slew of marketing and business research services, which you can read about on the D&B website. There are two services that I do specifically want to point out. Depending on how you buy them, D&B offers packages that combine the two in various ways.
The first lets you query D&B's database to check on the creditworthiness of your potential customers. Of course, that may or may not be relevant to your business (if you're operating a retail business, your customer's creditworthiness isn't really relevant--unless you plan to offer payment terms, and even then, if your customers are consumers, D&B won't "know" them), but if your business deals with other businesses, even if you don't offer terms, but especially if you deal in large-dollar transactions, having a quick way to check out a prospective customer's past payment habits and other pertinent details is worthwhile. Tip: If your customer is a public company, I wouldn't bother with their D&B file--you get plenty of information from looking up their ticker symbols on Yahoo! Finance, Google Finance, and similar sites that compile information on public companies. The same is probably true for well-known private companies that you yourself are comfortable doing business with (but if in doubt, look 'em up).
The second service lets you keep an eye on your own D&B file, complete with email notifications when changes show up. Just like you may already do this for your personal credit file, knowing what's in your business file and making sure it's accurate and complete is well worth doing. Again, this feature is made available "on-demand" (less the email notifications) for a per-query fee or as part of a subscription. I'm fond of their subscription service, which can be had for under $100 a month; it includes a small package of "eValuator" reports (checking out other company's D&B profiles) and unlimited access to your D&B profile. Again, see D&B's website for details and current package and pricing information. Tip: D&B can also be a way to get "intelligence" on your competitors.
So back to the chicken and the egg. How do you build up your credit file in the first place? Frankly, your first several trade accounts probably won't have terms (other than COD), but even those will help you in time. Naturally, suppliers that you have prior relationships with and/or smaller suppliers that you can build a closer personal relationship with will likely be the first ones to give you terms, maybe starting you off on Net10 or Net15 until you prove yourself and ultimately moving to Net30. Bottom line, you have to "work it". Start off new supplier relationships paying with cash/check or credit card (but do open an account either way--even without credit terms and even if the supplier doesn't require it for "cash and carry" purchases). Then work hard to establish a personal relationship with your primary contacts at your suppliers, especially your "key" suppliers. Your goal is to let them see that they can trust you, and by extension, trust your company. When the time is right, ask them for credit terms, but don't be unrealistic with regard to timing or the credit limit you request--here you have to take it in small steps as you build credibility. Finally, I mentioned that D&B will (for a small fee) contact your non-reporting suppliers and add their feedback to your file. This is well worth the investment, but only after you have built relationships with at least three to five of these suppliers--doing this too soon is just a waste of time and money.
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