Should You Dispute Slow Payments?

Do you have a slow payment showing on your business credit report that is bringing down your scores and ratings? Have you thought about disputing it but didn't know how? Or did you successfully dispute a slow payment only to see that it reappeared a month or so later?

Let's do a deep dive on the facts about how the slow payment dispute process works so you can make an informed decision as to whether you should dispute that slow payment or not — and why you may not want to.

How slow payments get reported

There are only two ways that payment history gets added into your business credit report:

1) Automatically by a company who auto-reports all transactions (positive and negative) to the commercial credit bureaus on a contractual basis, or —

2) Manually by a vendor, supplier or creditor after you submitted their contact information to the bureau for verification.

I feel it's important to note that autoreporting vendors are computers (not humans) and they are sending hundreds of thousands of cold hard data points via electronic link-up (not individuals transactions.) Even so, if human beings are inputting the data into the system, there is always the possibility that something will get entered incorrectly. Accidents do happen.

In most cases, a slow payment gets added to your report because you either:

A) didn't pay a bill

B) paid the bill late, or

C) paid the bill on time but it didn't get processed in time, which can happen if you mail a check too close to the due date or pay online and the processor takes 2-3 days to update. (And it happens more than you might realize.)

How slow payments impact your scores and ratings

By now, everyone is aware that a slow payment can have an impact on a company's Paydex score, but most business owners don't realize that it can also negatively affect many of the other scores in a business credit file that you may not be tracking. Payments, both positive and negative, are dollar-weighted and time-scaled. This means that slow payments that are larger and newer carry a heavier weight than those that are smaller or older.

The bureaus also grade according to the number of transactions that are on-time versus those that are past due. If you only have five payments in your credit report and one of them (or 20% of the total number of transactions) is past due, the scores will be more severely impacted than if you have twenty payments and only one (or 5% of the total number of transactions) is past due.

Needless to say, bad debts, collections and payments that keep lapsing further and further behind will carry the heaviest negative weight. If your vendors said you were 30 days past due last month and then re-reported that you're 60 days past due this month, there's a higher-than-normal probability that you will be 90 days past due next month. Your scores are going to drop because the bureaus are sending a warning that you are no longer a good bet.

When you should dispute a slow payment

No vendor, supplier or creditor expects your company to have a perfect credit score, but they do expect you to make an effort at being a responsible bill-payer. Nothing sends up a red flag to a creditor faster than pulling a credit report and finding your potential new customer has a high percentage of past due balances, bad debts or collections. They don't want to be the next supplier who's having to wait 60-90 days for payment on that invoice.

Again... Everyone makes mistakes. If you are planning to approach a new supplier and you have an old slow payment in your credit report that is impacting your scores and ratings, a successful dispute could help make a better impression. You'll want to submit the dispute 10-14 days in advance to allow enough time for the dispute process to run it's course. If the dispute is successful, your scores will rebound and send a more positive signal to your new supplier.

Allowing 10-14 days also provides you with a little "insulation" just in case the slow payment gets automatically re-reported before you have a chance to leverage your new scores with your supplier.

When you shouldn't dispute a slow payment

For anyone who calls in for a free consultation about disputing slow payments, my first question is always "What is the date to the left of the payment?"

I ask because payment history only stays in the business credit report for 24-28 months and auto-reported slow payments can sometimes drop off the report after just 12 months. If your dispute is successful, the payment will come off your report. But if it gets re-reported next month, the clock could reset again, making it appear as it the payment is being reported for the first time. If that happens, it could be two years from the new date before the slow payment falls off your report. So if a slow payment is 18-24 months old, it's weight is already significantly decreased, and you may be better off waiting 6-7 months for it to drop off the report permanently than to risk restating the two-year clock.

Another factor to take into consideration is whether or not the payment is reporting as having anything past due at this time. If the Payment Record shows you pay "Prompt to slow 30" but there is $0 in the Past Due column, that slow payment is not having as much impact as it would if that $0 was showing an actual dollar amount that is still past due. If you are currently using (and re-using) that supplier, making a concerted effort to pay them on time will eventually change the "Prompt to slow 30" back to "Pays Promptly".

How to launch a dispute

The best way to launch a slow payment dispute is by contacting

A) the creditor, and then

B) the credit bureau.

Contacting the creditor is great if you know who the creditor is, but since the bureaus aren't required to identify the creditor by name, that isn't always as easy as it sounds. In business credit reports, vendors, suppliers and creditors are identified by industry only. If you can figure out who is reporting the slow payment, you can check with them to see if there's a discrepancy that you overlooked or if they can adjust how they are reporting.

Commercial credit bureaus are required to provide a means to dispute incorrect data. Some bureaus require you to launch a dispute in writing or by filling out a form online, and those disputes can take anywhere from 30-90 days to resolve. D&B provides the business principal with free access to D-U-N-S Manager, where they can update data and launch disputes as needed. Typically, only one dispute can be launched at a time, but they are usually resolved within less than two weeks, although bad debts and collections can take up to 45 days.

I provide more in-depth instructions in my May 2018 blog post "How to dispute and remove slow payments on your D&B report". You can access the full blog post here.

Reach out to me directly if you need help accessing your free D-U-N-S Manager.

What happens after a dispute is launched

When you launch a dispute, you should receive an email confirming the dispute is in process. If you don't receive that confirmation email, best practice is to call and make sure the bureau received your request.

Each bureau has their own internal policy for handling disputes. While some bureaus will contact the supplier in writing so they can verify accurate payment reporting, others may not. Dun and Bradstreet, for instance, may simply remove an auto-reported slow payment right away without ever contacting the supplier/creditor that reported it. But they will be watching to see if (and how) the vendor re-reports. If the creditor does re-report, the payment will flow into the file showing its current status, whether slow or paid on-time. If they don't re-report, the offending payment stays off your file and you may get a slight score boost.

I recommend that you track any changes to your company's scores and ratings throughout the dispute process. If you're successful, removing that slow payment may boost some scores but have a negative impact on others, although any negative impact is usually temporary and decreases over time.

Alternatives that work better than disputing a slow payment

I've always been a fan of finding better options to achieve a more positive and lasting result, which is why my clients are consistently gaining traction even if they aren't perfect. Here are a few of my favorites for lessening the impact slow payments have on your business credit scores:

1) Wait it out. If you feel the slow payment is a reporting error, wait for the payment to self-correct on its own. Sometimes, slow payments get reported in error. If the creditor contacts the bureau to correct their mistake, their error may be corrected the next time they report.

2) Re-use the supplier. If you can re-use the supplier again and make sure to pay the bill on-time, you can usually refresh the history to show a more positive payment record. Since most creditors are reporting on your "most recent transaction", any new positive transaction is going to lessen the impact of the slow payment by proving:

A) you are still using your supplier,

B) you are still trusted by your supplier, and

C) that slow payment was a fluke because you can (and do) pay your bills on time.

As an added bonus, you didn't lose a valuable transaction. You turned a negative into a positive.

3) Add more positives. While auto-reported payment history is nice, it typically doesn't represent the bulk of where you're spending your dollars. In all likelihood, you are spending money in your own neighborhood or with smaller suppliers who don't report to the bureaus at all. By submitting a list of your existing payment history, the bureaus are able to contact more of your suppliers and creditors and get a better picture of who you are, what you do, where you shop, what you spend and who you are spending with. Not only will this add more payments (more insulation) to your report, it will help to boost more of your scores because it paints a more vivid picture of your company's true spend and capacity to pay.

If you need assistance, call or chat

I offer both free consultations and paid services. If you need help to better understand your business credit report or get past a hurdle, feel free to give me a call (800-918-7505) or contact me via our online chat. I'm here if you need me.