- Loan Insider
What Is a Trade Reference?
A trade reference is a report that encompasses the payment history of a business with its vendors, suppliers, lenders, or partners. Think of it as a credit score for your business.
Dun & Bradstreet, known as D&B Paydex, Equifax which is known as Paynet, or Experian are agencies that keep track of commercial credit reports. Such experiences may impact your business in a good or bad way.
These references or payment history can be done by submitting a trade reference letter to anyone who may ask for it, or request one from the agencies mentioned above.
Keeping an exceptional relationship with your creditors, will make for an exceptional business credit score (which can improve your DUNS number or Paynet).
Advantages and Disadvantages of Trade Credit?
Improves cash flow
May help increase business credit
Makes it easier for vendors, suppliers, lenders, partners to extend credit
May lower credit limits with vendors or suppliers
Limit purchasing power
May not be reported to increase business credit
How Can a Business Get a Trade Reference?
You may be asking yourself, how can I build my business’ trade references? Well, the answer is simple. You can get a trade reference by doing business with companies you purchase from that allow for your business to pay at a later time. Usually these payment terms are referred to as “Net Terms” on invoices or contracts. Such terms allow for you to pay from the day you receive the invoice adding an additional range which could be anywhere from 10 days to up to 120 days or later. The longer your business has been established, vendors or suppliers tend to consider a longer due date for those invoices. Some companies may request a letter or verbal trade reference to evaluate your business’ credit history with other companies.
All new businesses should seek out vendors that offer or extend terms. Not all vendors or suppliers might offer a new business any credit since no business credit exists. It is always useful to ask before purchasing or working with such companies.
With an existing business, seeking business credit might be a bit easier. Start with your current suppliers, vendor, lenders, partners and find out if they currently report your payments history to any of the commercial credit bureaus.
How Can I Increase My Business’ Trade References?
Trade references are sometimes reported to commercial credit bureaus either by the vendors, suppliers, lenders, or partners themselves. In the case they are not, you may request to manually input it yourself to any of those credit bureaus. Adding these trade references can help build your business’ credit score. Keep in mind that paying all invoices or services on time will essentially promote your business to keep an excellent standing and reputation on commercial credit bureaus.
What Can Trade References Help With?
Trade references can be helpful when purchasing new services, products, or simply looking for a small business loan. When seeking small business financing, lenders tend to ask for trade references to learn trends on your business’ buying and paying history. Every time an on-time payment is completed to your vendors or suppliers, that accounts to building your business credit. As mentioned some of those vendors, suppliers, lenders, partners factors in these references when making a decision on their end.
What Is a Trade Reference Example?
Trade references may sometimes include the following information when requested:
Customer or Business Information (Name of business, address, owner names, etc.)
Credit terms (i.e, Net 30, Net 45, etc.)
Date account opened
Past Balances (If any)
Highest Balance (Highest revolving balance with any vendor, supplier, etc.)
Number of late payments
Total credit limit
Want To Increase Your Trade References?
Remember to start establishing business trade credit, you don't need to have an exceptional personal credit. Ways to expand your business’ trade references would be to either work with your current vendors or lenders. Steer Financial can help your business increase your trade credit, by providing assistance in either getting a business line of credit or equipment financing. Want to learn more? Contact us today.