Trade Reference Definition
Annual reports provide public records, and customers and suppliers all provide information to organizations such as Dun and Bradstreet to assemble a picture of your company, or Paydex score, for potential creditors. Since lenders require — and check — trade references, it benefits you to report acceptable references with which you are in good standing. Just as we should maintain excellent personal credit, business owners should focus on maintaining excellent business credit. It takes work to build business credit since it is not automatically reported to business credit bureaus such as D&B and Experian. But this work can certainly pay off in the form of lower loan interest rates, lower premiums, and better credit terms with vendors and suppliers. As a buyer, it’s important to know that trade references may be used in different ways.
Supplier credit teams request credit references such as bank and trade references from their new customers. D&B maintains public credit ratings available to potential lenders, suppliers and clients, so executive officers assemble their trade references carefully. Lenders typically require at least three trade references with no adverse payment records or public records, such as lawsuits, within the preceding 12 months.
Primary references — suppliers upon which your business depends — carry more weight on credit applications than secondary references. Incomplete transactions, international corporations, banking and periodic exchanges such as utility, insurance and financial services do not typically constitute acceptable references. New businesses want to see out companies that offer vendor terms and are open to working with those businesses that are less than two years old or do not have an established business credit record to get trade references.
It helps your customers and it helps other businesses ensure they aren’t taking unnecessary risk when extending credit. The most obvious place to start is with the vendors and suppliers you already do business with. There are also a number of vendors willing to extend credit to businesses that purchase their products and services, even if your business is new. However, it does take a long time to build up good trade references. Just like any healthy relationship, it takes a while to lay down the foundation of trust.