What is a Trade Reference?

What is a Trade Reference?

What is a Trade Reference?

A trade reference is a report detailing the payment history between a business customer and its supplier or vendor. Trade references may be supplied verbally, in the form of a trade reference letter, or by reporting payment history to commercial credit reporting agencies such as Dun & Bradstreet, Experian or Equifax. Excellent trade references contribute to good business credit scores. 

Trade credit advantages and disadvantages



  • Lower credit limits initially
  • Limited purchasing options
  • Not all trade references build business credit

How to get a trade reference

You get trade references by doing business with companies that allow you to purchase goods or services and pay for them later. This arrangement is often in the form of “net terms” such as net 30 terms where payment is due in thirty days after the invoice date. (Net terms may range anywhere from net 10 to net 120 or longer. Generally, longer terms are available to established businesses that are considered good customers.) 

Companies are more likely to extend credit or to do business with companies they trust and that they consider to be a low credit risk. They may request written or verbal trade references from your existing business relationships or they may check business credit reports to evaluate your business payment history with other creditors. If your business doesn’t have a strong business credit history, you’ll want to make an effort to establish business credit by using accounts that report.

Note that some companies may require you to make a certain number of purchases before extending credit. That’s commonly the case for startups and for some new clients of the business. 

New businesses

To get trade references (also referred to as trade lines), new businesses may want to seek out companies that offer vendor terms and are open to working with businesses that are less than two years old or don’t have an established business credit record.

Existing businesses

Start with your existing suppliers and vendors to find out whether they provide credit. If they do, be sure to monitor your business credit reports to see which ones report payment history. (You can check and monitor your business credit for free at Nav.com.) If you don’t have any existing relationships that will allow you to buy on credit, consider working with companies that extend vendor credit. 

Can trade references help with financing?

Good trade references can absolutely be helpful when it comes to qualifying for small business financing. When filling out a credit application for business financing, you may be asked to provide the names of your vendors or suppliers so your payment history can be verified. 

In addition, some of the companies you pay on terms will report payments to business credit reporting agencies. On-time payments on these accounts can help you build business credit. (Dun & Bradstreet’s Paydex score, for example, is heavily weighted toward trade credit experiences.) Strong business credit is one of the factors— along with time in business, revenues and/or personal credit scores— that small business lenders may consider when evaluating applications from entrepreneurs seeking business loans for financing.

Some vendors are willing to accept trade reference letters or will do a verbal verification with your existing suppliers if your business credit scores aren’t strong. Again, this is why they may ask for the names of trade credit references on a credit application. This is more time-consuming, however, so be sure to start building business credit as soon as possible. 

Note that trade references are unlikely to be checked when applying for business credit cards. Instead, credit card applications are usually evaluated based on the owner’s personal credit scores. In addition, it’s not common these days for banks to request trade references when extending credit, though you should be prepared to provide these references whenever you apply for financing. 

What is a trade reference example?

Here is some of the information that may be included with a trade reference:

  • Customer identifying information (name of business, address etc)
  • Credit terms (i.e. net 10, net 30)
  • Date account opened
  • Open AR balance (AR = accounts receivable)
  • Past due balance
  • Highest previous balance
  • DBT (days beyond terms) – current and previous
  • Number of late payments
  • Credit limit
  • Number of credit transactions

Why should a business send a trade reference request to its partners?

Trade references can benefit your business in terms of getting credit, but they can also help your business in terms of extending credit and getting paid on time. If your business is going to provide goods or services without being paid in full up front, you are extending credit. As a result, you may be asked to provide business trade references for your customers. Try to accommodate these requests if you can. It helps your customers and it helps other businesses ensure they aren’t taking unnecessary risk when extending credit.

Of course, any time you extend trade credit to your customers it’s important to have them fill out a credit application so you can evaluate their creditworthiness and determine how much risk you are willing to take. Consider checking their business credit file as well. (Anyone can check business credit; you don’t have to get permission from your customers first.) If prospective borrower’s don’t have a strong credit rating you may want to extend a smaller amount of credit until they demonstrate they will pay on time.

You may want to consider reporting your customer’s payment experience to commercial credit bureaus such as Dun & Bradstreet, Equifax or Experian, and/or to the Small Business Financial Exchange. Let your customers know you report to business credit; that’s an incentive for them to pay on time. Reporting will help your customers build business credit.


How are trade references are different than trade credit?

Trade credit is when a business will allow another business to purchase goods or services without paying up front. The trade reference – how that customer manages that credit— is the result of that relationship. The two are closely intertwined: you get trade credit and then your payment history determines whether that company is likely to give you a positive trade reference. 

Can I get trade references if I don’t have good personal credit? 

The good news is that you don’t have to have stellar personal credit to start establishing trade credit. Some companies that extend trade credit won’t check the business owner’s personal credit reports at all. Others may do a “soft check,” to rule out very low personal credit scores. That means you may be able to secure credit with suppliers even as you work on your personal credit.

How do I ask for a trade reference?

Often you’ll contact the lender’s credit management department to request a trade reference. If you’re a business owner applying for credit, it’s not a bad idea to check with your vendors or suppliers before you list them as a trade reference on a credit application to ensure you include proper contact information.

What are other options to improve business credit scores? 

While trade references can be a great way to build business credit, they aren’t the only option. A business credit card is another way to build business credit, as most business credit cards report to at least one of the major commercial credit reporting agencies. Many small business lenders also report to business credit as well.

Finally, a Nav Business Boost or Business Loan Builder account can build credit with line reporting.

This article was originally written on October 7, 2020 and updated on October 27, 2021.

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