What Is a Trade Reference on a Credit Application?

Trade references are a common requirement on credit applications for businesses seeking to establish or expand credit lines. This article explains what trade references are, why they are important, how to select suitable ones, and how to provide this information accurately.

Understanding Trade References

A trade reference is an endorsement from another business with whom you have an established credit relationship. This typically involves a supplier or vendor who has extended credit to your business for goods or services. These references offer real-world insights into your company’s payment behaviors and financial reliability. They are distinct from personal or bank references, as their focus is specifically on business-to-business payment patterns.

Credit grantors, such as lenders or new suppliers, use trade references to assess your business’s creditworthiness and the risk of extending credit. Trade references provide a supplement to traditional financial statements and credit scores, offering a practical demonstration of your operational behavior.

When contacted, a trade reference typically provides specific details about your account, including your payment history and promptness. This encompasses information like the credit terms extended (e.g., Net 30), the average invoice amounts, and the length of your business relationship. They may also share details on your credit limit, highest previous balance, any outstanding balances, and the number of credit transactions.

Selecting Your Trade References

Ideal candidates are businesses from whom you consistently purchase goods or services on credit terms, such as suppliers, vendors, or service providers. These relationships should be established, ideally for a minimum of six months to one to two years, to demonstrate a consistent payment track record.

The most impactful references come from businesses with whom you maintain a strong, positive payment history. This means consistently making on-time or early payments, showcasing your reliability. It is important that the reference actually extended credit to your business, rather than only engaging in cash transactions.

Businesses that only involve cash transactions, such as certain utility companies, or personal contacts like friends, family, or employees, are generally not suitable as trade references. Focusing on suppliers with whom you have direct credit lines provides the most relevant and valuable information.

Providing Trade Reference Information

Before listing any business as a trade reference, contact them to obtain explicit permission. This ensures they are willing to provide information and are prepared for inquiries from a potential credit grantor.

When preparing to submit your credit application, gather accurate and complete contact details for each chosen reference. This typically includes the company’s full name, a specific contact person within their accounts receivable or credit department, their direct phone number, and an email address. Including your account number with that vendor can also facilitate the reference’s ability to quickly locate your records.

The credit application form will usually have a dedicated section for trade references, often requesting around three such contacts. You should carefully enter all the collected information into this section. Providing clear and precise details helps the credit grantor efficiently verify your payment history, contributing to a smoother assessment of your credit application.