5 Things You Should Know About Trade References
Companies are more likely to extend credit to businesses they trust. They may request written or verbal trade references from your existing relationships or they may check business credit reports to evaluate your business payment history with other creditors. If your business doesn’t have a business credit history, you’ll want to make an effort to establish business credit. Trade references are one source of information that can be used to help improve your business credit score. By demonstrating a business’s longstanding and timely payment history, a good trade reference acts as proof of the business’s financial responsibility. A standard business credit application will ask for three trade references.
Lenders and credit suppliers will often ask just how long an account has been open. And they also want to know how many times the amount due has been paid late. Such inquiries can come either by telephone or in writing. This allows creditors to see if a customer is continuing to utilize credit with a specific vendor. For example, if a payment is only five or ten days past due, it may not be included in the total of past due payments. It’s up to the vendor’s discretion whether or not certain overdue payments are included.
Establishing trade references can be crucial to the success of your business if credit is important to you. A history of solid payments shows that you are a low credit risk. Companies will be more willing to extend credit to you for this reason.
You’ll quickly find this out when you fill out an application for a loan or credit. What’s considered a trade reference is completely up to the business approving your application. In some cases, utilities aren’t considered trade references. A small business or startup are not always the best references either. While onboarding a new customer, credit references act as recommendations to justify whether the customer should be granted credit or not.
Note that trade references are unlikely to be checked when applying for business credit cards. Instead, credit card applications are usually evaluated based on the owner’s personal credit scores. In addition, it’s not common these days for banks to request trade references when extending credit, though you should be prepared to provide these references whenever you apply for financing. They’re important because your positive payment history can help you build your business credit and boost credit scores, and that will qualify you for financial products at great rates.