If you apply for a line of credit for your business, there’s a chance that you’ll need to share a trade reference with the lender. Or, if you’re a vendor, you might be asked permission to be listed as a trade reference for one of your business customers. Even more, if you extend a line of credit to one of your business customers, you may want to ask them to provide you with a trade reference. So, what are trade references and what all do they entail?
If you’re clueless on the subject or just need a bit more information, we’re here to help. Let’s explore the fundamentals of trade references so you can gain a clear picture. Here’s what we’ll cover.
Now, let’s get to it!
What are Trade References?
A trade reference or credit reference is a professional testimonial from a vendor or supplier on behalf of a business customer to vouch for that business’s reliability. In most cases, trade references are required or recommended on business financing applications as a form of documentation of the company’s ability to pay debts on-time, as agreed. A positive trade reference can make all the difference in a successful financing application.
And, a trade reference request is a solicitation for a trade reference from a vendor. For example, a supplier that has received on-time payments from a business customer each month might be asked by that customer to provide a trade reference that outlines the company’s payment history. The business customer could then use the reference on an application for a term loan, line of credit, or credit card.
A trade reference is comprised of seven parts:
- Business Contact Information – Legal business names, addresses, and phone numbers for the vendor and the client/customer involved.
- Reporting date – AKA “as of date,” the reporting date is the date that the reference is collected.
- Manner of payment – Details whether payment was made via cash, check, debit, or credit card.
- Rolling, 12-month high credit – Indicates the highest amount of credit used in the past 12 months when applicable.
- Current total amount owing – Denotes the amount owed to the vendor ass of the reporting date.
- Current total past due – Identifies when an amount owed is unpaid past the agreed-upon date of payment.
- Selling terms – Outlines the payment agreement including payment amount, due date, and net terms.
- Date of last sale – Reveals the last time a service was rendered or order placed.
Business credit bureaus want to see everything above
What is an Example of a Trade Reference?
You might think of companies that you pay monthly utilities to as decent references for your creditworthiness. However, when it comes to business financing, you’ll get more klout from vendors and creditors within your industry. For example, if there is a company that supplies your business with funding, operating materials, or services, they might make a good trade reference — even better if they allow you to “buy now and pay later.”
You can get trade references from any company that allows your business to pay for supplies or services at some point after delivery. By doing busines with these vendors and paying as agreed, you can collect references that help you establish your credit.
| Some net 30 vendors, suppliers that offer 30-day net payment terms on business orders regularly report payments to business credit bureaus under certain conditions. We’ve reviewed some of them, including how to get the most out of their offers: Summa Office SuppliesCrown Office SuppliesHome Depot Business AccountAmazon Corporate Credit Line |
How are Trade References Used?
On a credit application, a trade reference can help showcase a borrower’s reliability when no business credit score has been established. In this case, a trade reference can be attached to the original application.
Another way to use trade references is to manually request them from vendors and report to D&B and other business credit bureaus. This helps establish a high business credit score, accessible by any lender who looks at your profile.
How Can You Report Trade References to Dun and Bradstreet?
Dun and Bradstreet (D&B) is the leading business credit bureau. To build your business credit score, you will need to first request a DUNS number. After your business credit profile has been established (or claimed), you can work to build credit and increase your business credit score.
One step you can take to improve your score is to manually submit trade reference letters from vendors that you do business with. There are some companies that you can not manually submit trade reference letters from:
- Companies that already report to D&B (most major lenders and some 30-day net vendors)
- Companies without a D&B credit profile
- Companies that have been prohibited by D&B for untrustworthy activity
- Companies outside the US
- Companies with legal ties to your business
- Companies with internal rules against D&B reporting
Before you manually submit a trade reference, you will need to send a trade reference request to your vendor. Include a trade reference template that asks for all of the required information for quicker reciept.
After you have a reference to submit, you will need to upgrade your D&B account to a paid CreditBuilder™ account. With this account level access, you can submit trade reference letters online or through your account concierge.
Note that a paid D&B account is NOT necessary to build business credit. There are many things you can do to build business credit fast, without paying for expensive subscriptions from credit bureaus or monitoring services. This is exacly what we teach in our Business Credit Workshop.
Trade Reference Templates
When you need to request a trade reference from a vendor, you’ll need a trade reference request letter and a trade reference template that the vendor can fill out. Feel free to alter these for your needs:
Final Thoughts
A trade reference provides potential lenders and credit bureaus with more information than they are able to find via algorithms and search engines. These references can be invaluable for a business that is just starting its credit-building journey. If you want to learn how to get $100K in business credit in 30 days, join Business Credit Workshop today.