Learn the Secrets of Trade References in the Slump Economy Today
You may have heard or read the term ‘trade reference’, but do you really know what it’s all about? Are you asking yourself, what are trade references on a standard business credit application? What are the most important things you should know about trade references? How can they help you in a slump economy?
Building corporate credit is more than just the objective information. It’s also about the subjective. So sit tight, because here are the details.
Recession Era Funding
The number of American banks and also thrifts has been decreasing progressively for a quarter of a century. This is from consolidation in the marketplace as well as deregulation in the 1990s, lowering barriers to interstate banking. See: https://www.fundera.com/blog/happened-americas-small-businesses-financial-crisis-six-years-start-crisis-look-back-10-charts
Assets focused in ever‐larger banks is problematic for small business owners. Big banks are much less likely to make small loans. Economic downturns imply banks come to be extra cautious with financing. Luckily, business credit does not depend on banks. And it is utterly independent of any pandemic.
Things You Should Know About Trade References: 5. Just What is a Trade Reference in a Slump Economy, Anyway?
Here is a standard trade reference definition. A trade reference on a credit application is used to help lenders and business to business suppliers make decisions about whether or not to extend credit to a credit applicant.
So, what are trade references on a credit application? They are one of the only parts of a credit file that isn’t just numbers or court filings!
These credit references for businesses are usually presented in conjunction with a formal credit report. Such a formal credit report would come from a known business credit-rating agency. These are the best-known CRAs, such as Experian or Dun & Bradstreet.
Companies and banks which loan money and extend credit want to be sure that their customers can pay their debts on time and in full. Excellent trade references are an important asset which successful companies should place a high value on.
A trade reference means there is more to go on that numbers. With trade references on credit application, there is a lot more detail.
Things You Should Know About Trade References: 4. Criteria for a Business Trade Reference in a Slump Economy
Lenders and credit suppliers will often ask just how long an account has been open. They will ask about its credit or purchasing limit. And they also want to know how many times (if any) the amount due has been paid late. Such inquiries can come either by phone or in writing.
Creditors naturally place a higher value on customers with longstanding payment histories. Plus they often will save their best deals for credit applicants with the best trade references and credit profiles.
Things You Should Know About Trade References: 3. A Trade Credit Reference Can Provide an Accurate and Correct Picture, Even in a Slump Economy
Some banks may not report negative payment histories to the big national credit bureaus (Experian, Equifax, and Dun & Bradstreet) until the borrower is 30 or 60 days late.
And some suppliers, in particular smaller businesses, will not report their client histories at all. These factors make checking trade references vital when companies are making the decision to extend credit.
In addition, month to month payment histories will always represent a far more accurate picture of a small business’s true financial viability. This is because even companies with good cash flow could be taking unreasonable risks at the expense of their suppliers.
Things You Should Know About Trade References: 2. Bank and Trade References Showcase Timely Payment and Repayment, Especially in a Slump Economy
Most businesses realize that maintaining a prime credit rating is very important. Therefore, if they start struggling, they may become good at prioritizing their debt and supplier payments.
This is like the old expression, ‘robbing Peter to pay Paul’. By using their cash flow to pay any bank loans and larger suppliers, they might also be putting off smaller creditors. In this way, these businesses on the edge can paint a misleading credit portrait.
Therefore, it is important to start checking both large and small references. As a result, you can save yourself the time and headaches of taking on new clients whose accounts have a high chance of going into collections.
This is true of both companies looking to extend credit, and banks looking to make loans. And for startups, this is really vital. It helps a lot to get trade references for new business.
Things You Should Know About Trade References: 1. What About the Number and Sort of Trade References in a Slump Economy?
A standard business credit application will ask for three trade references. These are often creditors and suppliers within the industry. Trade reference examples tend not to be utilities like telephone and gas service.
This is because many struggling businesses may try to put off their suppliers for a month or two, but not the utility companies. At least, they won’t do this if they want their offices to have heat and lights.
Primary and direct references, which include suppliers of items such as computer equipment and raw materials, will be the most valuable.
Secondary trade references may include subcontractors who may be willing to not be paid until the main client pays. As a result, these examples of credit references can be less reliable indicators of a small business’s overall financial health. Still, you should take any negative feedback on a trade reference sheet seriously.
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Things You Should Know About Trade References: Bonus #1 for a Slump Economy: How to Make a Credit Reference Request if You Are the Creditor Asking About a Company You Do Business With
A trade reference sample is best. This great business credit reference form came from Business Debt Line. Make sure to fill in the blanks or information in square brackets [].
Same Trade Reference Request Letter for Creditor
From:
__________ [Sender’s name]
__________ [Sender’s address]
__________
__________
Date: __________ [Sender wrote the letter on this date]
To:
__________ [Receiver’s name]
__________ [Receiver’s address]
__________
__________
Dear Sir/Madam:
Re: [enter the name of the company you are asking about here]
I have received an application for a credit account from the above named company. Your name has been given as a referee. Therefore, I would be grateful if you could answer the following questions.
How long has the customer traded with you? ________________________________
What are your terms of payment? _______________ days
Does the customer generally pay within the time required? YES/NO
Would you consider the customer to be a good credit risk? YES/NO
Please add any other comments you feel are relevant below.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Once you have completed this form please return it in the envelope provided.
Thank you for your assistance.
Yours faithfully,
Signature
Name
For and On Behalf of Your Business
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Things You Should Know About Trade References: Bonus #2 for a Slump Economy: How to Ask for One if You Need a Trade Reference for Your Company
Let’s use another business credit application sample. Make sure to fill in the blanks or information in square brackets [], and select anything with a slash (/) and delete the other choice. This is a great trade reference form template.
Same Trade Reference Request Letter for Company
From:
__________ [Sender’s name]
__________ [Sender’s address]
__________
__________
Date: __________ [Sender wrote the letter on this date]
To:
__________ [Receiver’s name]
__________ [Receiver’s address]
__________
__________
Dear Sir/Madam:
Re: Trade Reference for [your company]
It has been [your company]’s pleasure to conduct business with you for [number] years/months. The company is applying for more credit, and I hope to be able to cite your name as a referee. Would that be possible? Please let me know either way.
If the answer is yes, then I have prepared a few brief questions. Please send back in the enclosed envelope and we will type it up. We will send it back with another self-addressed, stamped envelope, so you can send us a signed copy. Of course we will enclose a copy for you to keep for your records.
Therefore, I would be grateful if you could answer the following questions.
How long has [your company] traded with you? ________________________________
What are your terms of payment? _______________ days
Does [your company] generally pay within the time required? YES/NO
Would you consider [your company] to be a good credit risk? YES/NO
Please add any other comments you feel are relevant below.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Once you have completed this form please return it in the envelope provided.
Thank you for your assistance.
Yours faithfully,
Signature
Name
For and On Behalf of Your Business
Hit the jackpot and weather any recession with our best webinar and its trustworthy list of seven vendors who can help you build business credit.
Things You Should Know About Trade References: Bonus #3 for a Slump Economy: How to Write a Trade Reference Letter About a Company You Do Business With
Let’s start with a trade reference example. Make sure to fill in the blanks or information in square brackets [], and select anything with a slash (/) and delete the other choice in this trade reference form.
Sample Trade Reference Letter
From:
__________ [Sender’s name]
__________ [Sender’s address]
__________
__________
Date: __________ [Sender wrote the letter on this date]
To:
__________ [Receiver’s name]
__________ [Receiver’s address]
__________
__________
Subject: Trade Reference for [company name]
Dear Sir/Madam:
Thank you for requesting a trade reference. We have done business with the [company name] for [amount of time]. Our terms of payment with them are [number] days.
[Company name] generally pays/does not pay within the time required. Payment patterns with [company name] are/are not subject to seasonal fluctuations. I would/would not consider the customer to be a good credit risk.
If you have any questions, please feel free to contact me.
Yours faithfully,
Signature
Name
Business Name
Things You Should Know About Trade References: Bonus #4: What to Do with a Trade Reference Request About Your Company
Send a copy of your trade reference to Dun & Bradstreet here. It will become part of your credit report, available to anyone who pulls your report. Because D&B gives trade references meaning – slump economy or not.
Things You Should Know About Trade References in the Slump Economy: Takeaways
So, what is trade references? Trade references for a small business can provide a much clearer picture of the overall health and day to day operations of a company. These allow a credit or loan provider to dig much deeper into the financial guts of a company.
What is trade reference meaning? What is a trade reference on a credit application? This is the best way to get to the real truth about the business’s financial viability. And that goes double in a slump economy.
The post Awesome! Trade References Can Help in the Slump Economy appeared first on Credit Suite.
