When it comes to extending credit to a small business, companies want to be assured that you pay your bills on time and that you can be trusted. One way they do that is to check your business trade credit references to see your previous history paying your vendors and suppliers.

If you are looking to build up your commercial credit, understanding how this works can help you increase your credit score and open many more doors of opportunity in the future. Your commercial credit profile is important but does not tell the whole story of your financial health. New businesses may not even have a credit file yet if they have only been open a short time. In that case, references from trusted sources can give you a much-needed boost in the right direction.

What is trade credit for businesses?

Trade credit is an agreement between a business customer and a vendor. The credit allows the buyer to purchase goods without paying anything upfront. Payment is usually due in 30, 60, or 90 days from the date of acquisition. The customer will receive an invoice for payment when the due date is approaching. In a way, it’s like 0% short-term financing since you are not charged interest on the balance.

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Why are business trade credit references important?

Just like personal references help raise your creditworthiness, business credit references show how you handle your business finances and that you pay your bills on time. Why is this beneficial? Let’s say you want to purchase goods from a certain company that offers credit and easy payments. You don’t have the capital to purchase the goods right now but if you applied for credit you could get them now and pay for it in 90 days when you would have the funds available.

Business trade references are suppliers or lenders that have done business with you in the past and are willing to “put in a good word for you.” This is done through data reports including your payment history, the reporting date or the date it was last updated, the amount owed, form of payment, and outstanding debt, if any, and more.

If you have had a long-time account with an equipment rental company for desks, office chairs, computers, printers, fax machines, etc. it can help you build credit or a reputation for paying your bills on time and being trustworthy when applying for credit. It helps your business appear financially stable and healthy. This looks very good to creditors and lenders who might otherwise be worried about your ability to repay debts. If you have already demonstrated financial stability by making payments over an extended period there is no reason to think you wouldn’t be able to do it now. 

Not all partnerships are acceptable, however. Business trade references from certain organizations are not eligible to be submitted to Dun and Bradstreet including landlords, banks, credit card companies, utilities, and companies that do not have a Dun and Bradstreet credit file or companies who want to remain anonymous. So who does qualify as a business trade credit reference? 

What are some examples of good business trade references?

Not all business trade references are good or acceptable. To build credit, you need to partner with companies that are registered through Dun and Bradstreet. It’s understandable for new companies to not have many contracts or associations yet. If this is the case, you can often request trade credit references from some of your other partnerships. Here are some examples of good trade references:

  • Accountant
  • Attorney
  • Payroll service
  • Software developer
  • Web designer
  • Website hosting
  • Construction company
  • Equipment leasing
  • Cleaning service
  • Furniture rental
  • Delivery services
  • Direct mail service
  • Printing service
  • Marketing company

The best trade credit references for businesses are the ones related to the same industry. Businesses in the same industry or related industry tend to be paid quicker than utilities and are therefore considered more reliable references. Credit accounts are reviewed at 30, 60, and 90 days for unpaid balances but a utility company will shut off service when the bill is not paid.

High-quality business trade references are valuable because they provide an accurate picture of the companies financial status and how they handle their affairs.

Who to put down for trade credit references for businesses?

When applying for business credit, it is preferable to use business trade references from contractors, equipment rentals, and computer or payroll services first, then utility companies as a secondary. Typically, a credit application will ask for 3 trade references.  You should put down your suppliers and creditors, but if your company is fairly new and you don’t have many contacts yet you can try some of the others listed above.

What kinds of questions does the inquiring company ask?

Companies looking to offer you credit will usually ask how long an account has been open, the starting credit limit, and how many times the account has been paid late. Late payments can be a big deal-breaker for new credit accounts. If you have a long-time association with your suppliers and a good payment history it is very likely they will approve you and may even offer you special deals or perks. Long-time customers are valuable to a company and worth keeping.

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How to request business trade credit references for your small business?

It may feel awkward asking for personal references for credit applications, but with credit references for businesses, it is different. Most of what is looked at is your data files so the person giving the reference will only be asked about business relations and payments.

If you need to ask a supplier to be a trade reference how do you go about it? Well, the process is pretty straight forward. You can do it one of two ways - request a trade reference in writing, or by submitting a credit application. The creditor or lender will call them for a reference if you do the latter.

You can write a letter to them letting them know that your company is looking to expand its product line (or whatever the reason you are applying for credit) and would like to know if you can use them as a reference. You can ask a few questions and leave a blank space for them to answer. Doing this in writing is very good since you can take their answers and submit them yourself if doing it manually.

Some business trade references report automatically to Dun and Bradstreet through trade tape. This is the easiest way to have it be accepted. Many of your suppliers keep reports on all of their customers’ payment histories, what they purchased, when the date of their last payment was, and more. Automatic submissions take no effort at all.

Manually submitted trade credit references may be submitted through the CreditBuilder program on Dun and Bradstreet’s website.

Why do lenders consider trade credit references from suppliers more valuable?

Any company that extends credit to customers wants to know that they will be paid for their products or services. Businesses that pay their accounts when due, pay their utilities, employees, payroll services, etc, and have done so for years have proven that they manage their money well and make good financial decisions. These are the customers that businesses want to offer credit to and not those they consider to be a financial risk.

What businesses are considered bad credit risk?

Bad credit risks are companies that have a habit of paying late, have trouble keeping employees due to labor costs (layoffs, etc.), pay the minimum on their bills to keep the lights on or pay infrequently. Businesses in financial trouble may “rob from Peter to pay Paul”, or pay less on some bills to cover all the bills. They are not demonstrating good financial decision-making and most likely will be a credit risk in the long run.

How business trade references help lenders and creditors avoid making poor financial decisions.

This is why business trade references are so important and carry so much weight with creditors. Reviewing references from previous partnerships can help steer the business away from agreements that might cause them to lose revenue. When you learn to spot financial risks, it is easy to see which businesses are good credit risks and which ones are not.

You should now see why business partnerships and trade credit references are so important to the success of a business. Trade references paint a picture of the business as a whole. They can help a business appear more credible and financially stable to potential lenders and future partners. It is an important part of building business credit and, by making timely payments, it can help you qualify for credit limit raises over time.