When deciding whether to extend credit to applicants, lenders often ask for a business credit reference (also called a trade reference), in addition to the information found in a business credit report from a credit bureau like D&B. With these business credit references, companies can find out whether you make payments promptly and in full.
Since banks often wait to report tardy payments until the payments are 30 or 60 days late, business credit references can paint a more up-to-date, specific and accurate picture of your business’s payment experiences and creditworthiness.
What Information Is Provided?
Lenders may ask for business credit references via phone or in writing, and are seeking information such as your credit limit, your number of late payments, and how long the account has been open. Business credit references can be just as important as profit margins when it comes to determining the risk involved in lending to your company.
Who Can Provide a Business Credit Reference?
A business credit reference is typically provided by a creditor or supplier within your industry. The most desirable business credit references come from companies such as suppliers of raw materials or computer equipment; references from subcontractors, who do not get paid until the primary client gets paid, are less valuable. In addition, creditors may want to see trade references from both big and small companies to ensure that you do not focus on paying big banks or creditors while ignoring smaller suppliers.
Companies that are generally NOT eligible to be business credit references include:
- Utility companies (such as an Internet, phone, gas and electricity providers)
- International companies
- Credit card companies
- Companies with shared principals or another type of legal ownership relationship
- Companies that anticipate but have not yet received your payment