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5 Astounding Things You Should Know About Trade References

Published By Janet Gershen-Siegel at September 14th, 2017

Learn the Secrets of Trade References Today

You may have heard or read the term ‘trade reference’, but do you really know what it’s all about? Are you asking yourself, what are trade references on a standard business credit application? What are the most important things you should know about trade references?

Building corporate credit is more than just the objective information. It’s also about the subjective. So sit tight, because here are the details.

Things You Should Know About Trade References: 1. Just What is a Trade Reference, Anyway?

Here is a standard trade reference definition. A trade reference on a credit application is used to help lenders and business to business suppliers make decisions about whether or not to extend credit to a credit applicant.

So, what are trade references on a credit application? They are one of the only parts of a credit file that isn’t just numbers or court filings!

These credit references for businesses are usually presented in conjunction with a formal credit report. Such a formal credit report would come from a known business credit-rating agency. These are the best-known CRAs, such as Experian or Dun & Bradstreet.

Companies and banks which loan money and extend credit want to be sure that their customers can pay their debts on time and in full. Excellent trade references are an important asset which successful companies should place a high value on.

A trade reference means there is more to go on that numbers. With trade references on credit application, there is a lot more detail.

business credit reference form Things You Should Know About Trade References Credit Suite

Things You Should Know About Trade References: 2. Criteria for a Business Trade Reference

Lenders and credit suppliers will often ask just how long an account has been open. They will ask about its credit or purchasing limit. And they also want to know how many times (if any) the amount due has been paid late. Such inquiries can come either by telephone or in writing.

Creditors naturally place a higher value on customers with longstanding payment histories. Plus they often will save their best deals for credit applicants with the best trade references and credit profiles.

Things You Should Know About Trade References: 3. A Trade Credit Reference Can Provide an Accurate and Correct Picture

Some banks may not report negative payment histories to the big national credit bureaus (Experian, Equifax, and Dun & Bradstreet) until the borrower is 30 or 60 days late.

And some suppliers, in particular smaller businesses, will not report their client histories at all. These factors make checking trade references vital when companies are making the decision to extend credit.

In addition, month to month payment histories will always represent a far more accurate picture of a small business’s true financial viability. This is because even companies with good cash flow could be taking unreasonable risks at the expense of their suppliers.

Things You Should Know About Trade References: 4. Bank and Trade References Showcase Timely Payment and Repayment

Most businesses realize that maintaining a prime credit rating is very important. Therefore, if they start struggling, they may become good at prioritizing their debt and supplier payments.

This is like the old expression, ‘robbing Peter to pay Paul’. By using their cash flow to pay any bank loans and larger suppliers, they might also be putting off smaller creditors. In this way, these businesses on the edge can paint a misleading credit portrait.

Therefore, it is important to start checking both large and small references. As a result, you can save yourself the time and headaches of taking on new clients whose accounts have a high chance of going into collections.

This is true of both companies looking to extend credit, and banks looking to make loans. And for startups, this is really vital. It helps a lot to get trade references for new business.

Things You Should Know About Trade References: 5. What About the Number and Sort of Trade References?

A standard business credit application will ask for three trade references. These are often creditors and suppliers within the industry. Trade reference examples tend not to be utilities like telephone and gas service.

This is because many struggling businesses may try to put off their suppliers for a month or two, but not the utility companies. At least, they won’t do this if they want their offices to have heat and lights.

Primary and direct references, which include suppliers of items such as computer equipment and raw materials, will be the most valuable.

Secondary trade references may include subcontractors who may be willing to not be paid until the main client pays. As a result, these examples of credit references can be less reliable indicators of a small business’s overall financial health. Still, you should take any negative feedback on a trade reference sheet seriously.

trade references for new business Things You Should Know About Trade References Credit Suite

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Things You Should Know About Trade References: Bonus #1: How to Make a Credit Reference Request if You Are the Creditor Asking About a Company You Do Business With

A trade reference sample is best. This great business credit reference form came from Business Debt Line. Make sure to fill in the blanks or information in square brackets [].

Same Trade Reference Request Letter for Creditor

From:

__________ [Sender’s name]

__________ [Sender’s address]

__________

__________

Date: __________ [Sender wrote the letter on this date]

To:

__________ [Receiver’s name]

__________ [Receiver’s address]

__________

__________

Dear Sir/Madam:

Re: [enter the name of the company you are asking about here]

I have received an application for a credit account from the above named company. Your name has been given as a referee. Therefore, I would be grateful if you could answer the following questions.

How long has the customer traded with you? ________________________________
What are your terms of payment? _______________ days
Does the customer generally pay within the time required? YES/NO
Would you consider the customer to be a good credit risk? YES/NO

Please add any other comments you feel are relevant below.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________

Once you have completed this form please return it in the envelope provided.

Thank you for your assistance.

Yours faithfully,

Signature

Name

For and On Behalf of Your Business

trade references for new business Things You Should Know About Trade References Credit Suite

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Things You Should Know About Trade References: Bonus #2: How to Ask for One if You Need a Trade Reference for Your Company

Let’s use another business credit application sample. Make sure to fill in the blanks or information in square brackets [], and select anything with a slash (/) and delete the other choice. This is a great trade reference form template.

Same Trade Reference Request Letter for Company

From:

__________ [Sender’s name]

__________ [Sender’s address]

__________

__________

Date: __________ [Sender wrote the letter on this date]

To:

__________ [Receiver’s name]

__________ [Receiver’s address]

__________

__________

Dear Sir/Madam:

Re: Trade Reference for [your company]

It has been [your company]’s pleasure to conduct business with you for [number] years/months. The company is applying for more credit, and I hope to be able to cite your name as a referee. Would that be possible? Please let me know either way.

If the answer is yes, then I have prepared a few brief questions. Please send back in the enclosed envelope and we will type it up. We will send it back with another self-addressed, stamped envelope, so you can send us a signed copy. Of course we will enclose a copy for you to keep for your records.

Therefore, I would be grateful if you could answer the following questions.

How long has [your company] traded with you? ________________________________
What are your terms of payment? _______________ days
Does [your company] generally pay within the time required? YES/NO
Would you consider [your company] to be a good credit risk? YES/NO

Please add any other comments you feel are relevant below.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________

Once you have completed this form please return it in the envelope provided.

Thank you for your assistance.

Yours faithfully,

Signature

Name

For and On Behalf of Your Business

trade references for new business Things You Should Know About Trade References Credit Suite

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Things You Should Know About Trade References: Bonus #3: How to Write a Trade Reference Letter About a Company You Do Business With

Let’s start with a trade reference example. Make sure to fill in the blanks or information in square brackets [], and select anything with a slash (/) and delete the other choice in this trade reference form.

Sample Trade Reference Letter

From:

__________ [Sender’s name]

__________ [Sender’s address]

__________

__________

Date: __________ [Sender wrote the letter on this date]

To:

__________ [Receiver’s name]

__________ [Receiver’s address]

__________

__________

Subject: Trade Reference for [company name]

Dear Sir/Madam:

Thank you for requesting a trade reference. We have done business with the [company name] for [amount of time]. Our terms of payment with them are [number] days.

[Company name] generally pays/does not pay within the time required. Payment patterns with [company name] are/are not subject to seasonal fluctuations. I would/would not consider the customer to be a good credit risk.

If you have any questions, please feel free to contact me.

Yours faithfully,

Signature

Name

Business Name

Things You Should Know About Trade References: Bonus #4: What to Do with a Trade Reference Request About Your Company

Send a copy of your trade reference to Dun & Bradstreet here. So, it will become part of your credit report, available to anyone who pulls your report. D&B gives trade references meaning.

Things You Should Know About Trade References: Takeaways

So, what is trade references? Trade references for a small business can provide a much clearer picture of the overall health and day to day operations of a company. So, these allow a credit or loan provider to dig much deeper into the financial guts of a company.

What is trade reference meaning? So, what is a trade reference on a credit application? This is the best way to get to the real truth about the business’s financial viability.

4 Comments

  1. pam donnelly says:

    we are trying to open several new customer accounts but we can not seem to get their credit reference to get back to us.
    How often should you call a credit reference. Let’s say you have emailed week 1 and then again 1 week later, should you be calling every day, 48 hours, 72 hours etc…. At what point is this called harassment?

    thank you

    • Janet Gershen-Siegel says:

      Hi!

      This is a great question. I asked, and the answer is … it depends.

      First off, which vendor are you talking about? Do you have any credit yet? Also, how is your business set up, e. g. in terms of do you have a separate address from your home, a D-U-N-S number, are you getting vendor credit, etc.?

      If you’re just starting your business, this post should be of help: https://www.creditsuite.com/blog/start-a-business/

      Thank you for asking.

    • Stephanie Temple says:

      I would recommend sending the request via fax. If you email or phone it most likely will get lost in translation or end up sitting in someone’s email and forgotten. Print out a form like the sample mentioned above in this article, and address it to either A/R, Credit dept., or Financial dept. Call and ask for that dept. fax number. It’s much easier for someone to send a fax than to call or email. I worked in credit and this is how we did references. Time line is generally three days, then you send a second request (and actually write that on the form), if still nothing send a “third and final request” (write on form). Also, remember to return the favor if you’re asked for one. Good luck.

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