Trade credit references can be a tricky subject. While it seems like open sharing of credit information would benefit everyone, there are risks attached that warrant caution. Providing inaccurate information or misrepresenting the facts can lead to litigation–even if it is done accidentally. Creditors who do so can be sued by their customer for damages. A negative reference, even if it’s accurate, can result in customers taking their business elsewhere.
There are no laws requiring creditors to provide references. As a result, many creditors limit the information they are willing to disclose and some have a policy of refusing all credit requests. While a certain level of care is deserved, simply following a few credit reporting guidelines can enable you as a creditor to share valuable information, build relationships, and avoid negative consequences.
The 5 Basic Guidelines for Providing Trade Credit References
1. Limit your response to accurate, factual information.
2. Be sure to follow antitrust laws that regulate the confidentiality of credit information.
3. Respond by fax, e-mail, or snail mail rather than by phone. This will ensure that you have a written record of your response.
4. Stay professional–never make off-hand or “off the record” comments about a customer. These have a tendency of getting back to the customer.
5. Stick to the standard credit reference information.
Standard Credit Reference Information
Creditors conventionally limit their response to credit reference requests to just a few fundamental pieces of information. By stringently adhering to this format, credit departments can be sure that they are providing only objective information without any side comments that can be construed as “misrepresenting the facts” or otherwise damaging a customer’s reputation. Of course, there are variations, but the following are the most common metrics provided in a trade credit reference:
- Date the account was opened
- Timeliness of payments
- Credit limit
- Highest balance
- Balance currently owed
- Balance past due (if any) and how far past due it is
- If and how the account is or was secured