When you’re building your business, your suppliers can turn out to be some of your best creditors. They will often extend short-term credit to small business owners so they can purchase the supplies they need without paying up front. This helps them too; they can cement the relationship with the business owner so they don’t go elsewhere. 

If you get trade credit and pay those accounts on time, your business can build valuable trade references that can help you establish business credit, and qualify for other types of business loans and financing. Good business credit can then help your business qualify for certain types of business loans and financing. 

For many small businesses, trade credit is essential to keeping their business going. 

The History of Credit in America points out that (an) “important source of lending, trade credit, proved remarkably important and resilient in times of both economic slumps and booms.” In other words, when banks won’t lend, business owners often turn to trade credit.

Here’s what you need to know about trade references.

Trade Reference Meaning

A trade reference is a detailed report that shows how reliably your business pays its bills to suppliers and vendors. When a supplier extends credit—letting you pay for goods or services later—they create a record of your payment behavior that becomes your trade reference.

Trade references come in three main forms:

• Direct verification where suppliers verbally confirm your payment history
• Written letters from vendors documenting your payment relationship
• Payment records reported to business credit bureaus 

When you pay consistently on time, trade references can help your business build strong business credit scores. This makes other suppliers more likely to extend credit to your business and can help you qualify for better financing terms.

Trade references that show on-time payments contribute to good business credit scores. 

For example, if you’ve maintained a two-year history of on-time payments with your office supply vendor, that positive trade reference could help convince a new supplier to offer you favorable payment terms. This kind of trade credit can significantly improve your cash flow by giving you time to generate revenue before paying for supplies.

Of course, if your credit report shows past due payments, they can hurt your credit rating. 

Read Nav’s Guide to Business Credit Reporting Agencies

Why Do You Need a Trade Reference

Trade references can lead to better supplier credit and financing opportunities for your business. When suppliers see a history of on-time payments from other vendors, they’re more likely to extend favorable trade credit terms to your company. 

Many vendors use trade references to assess creditworthiness before offering payment terms like net-30 or net-60. While you might not need extensive credit today, building strong trade references early creates a foundation for future growth. As your business expands, you may need larger credit lines from suppliers or want to secure better financing rates.

For instance, having several positive trade references showing consistent on-time payments can help you:

• Get longer payment terms with new suppliers (net-30 instead of net-15, for example)
• Qualify for higher credit limits with existing vendors
• Access better rates on small business loans and financing
• Build credibility with potential business partners

Think of trade references as stepping stones as you build your business.  Each positive payment relationship you establish makes it easier to secure the next level of credit your business needs to grow.

Trade Credit Advantages and Disadvantages

How Trade References Benefit Buyers

Building strong trade references benefits your business in several ways:

Better payment terms 

Start with small purchases and make payments early or on time. As your payment history grows, suppliers often extend longer payment windows or increase credit limits. This flexibility helps manage your cash flow more effectively.

Build business credit

Many suppliers check business credit reports or manual trade references before offering credit. Strong payment relationships make it easier to:

• Open new vendor accounts
• Increase existing credit limits
• Secure more favorable payment terms
• Qualify for business loans and financing

To build good business credit scores, you’ll often need at least three credit references appearing on your credit reports. 

Learn how credit scores work in Nav’s guide: Business Credit Scores: What You Need to Know

Perfect for new businesses 

Trade references provide an excellent starting point for building business credit, especially if you:

• Have limited time in business
• Don’t have perfect personal credit
• Need to establish business creditworthiness
• Want to improve cash flow without loans

Since many vendors don’t require personal credit checks or extensive business history, you can start building positive payment references immediately. Each on-time payment strengthens your business credit profile, creating a foundation for future growth and opportunities.

Learn more in Nav’s Establish Business Credit Guide

How to Get A Good 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.) 

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

If you’re new to supplier credit, understanding how to get tradelines can seem confusing. But it’s not difficult if you know where to look.

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

Existing businesses

Ask your existing suppliers and vendors to find out whether they offer credit. If they do, ask whether they report on-time payments to business credit bureaus (not all do).

If your suppliers don’t offer trade credit that reports, you may need to find companies that do.

What Makes a Strong Trade Reference

Payment history is what makes a strong trade reference. Every on-time or early payment helps strengthen your business’s credibility with suppliers. In some cases, paying early is even more helpful. For example, consistently paying your net-30 invoices within 25 days can create a more trade reference than making payments on day 30.

Quality trade references share these key characteristics:

Length of relationship 

A pattern of payments over time carries more weight than one-time purchases. A six-month history of monthly orders typically provides more value than a single large purchase from two years ago.

Credit utilization patterns 

Suppliers examine how you manage available credit. A positive reference shows:

• Regular use of the account
• Balanced limit of credit limit and balances
• History of paying down high balances

Account activity 

Active, current relationships demonstrate ongoing creditworthiness. The strongest trade references show:

• Recent transaction history
• Consistent purchase patterns
• On-time payments
• Gradually increasing credit limits

New businesses should focus on establishing a few strong vendor relationships rather than spreading purchases too thin. Start with smaller regular orders, maintain consistent payment patterns, and gradually build your credit history.

The goal is to demonstrate on-time payments over time. Even a few months of consistent payments can begin building the foundation of strong business credit.

Can Trade Reference Checks Help With Financing?

Good trade references can absolutely be helpful when it comes to qualifying for certain types of 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 the creditor can verify payment history. 

Ideally, though, companies you pay on terms will report payments to business credit reporting agencies. These accounts can help you build business credit. 

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 establish business credit as soon as possible. 

Trade references are unlikely to be checked when applying for business credit cards. Instead, credit card issuers usually check the owner’s personal credit scores. Banks, too, are more likely to check personal credit and/or business credit than to check 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?

Let’s take a look at a trade reference as an example of how suppliers might evaluate your business’s creditworthiness:

Business Information

• Business Name: Thompson Consulting LLC
• Physical Address: 123 Main Street, Suite 100
• Years at Location: 3 years
• Federal Tax ID/EIN: 12-3456789

Payment Relationship Details 

The reference shows Thompson Consulting has purchased office supplies regularly for 18 months with these terms:

• Credit Limit: $5,000
• Payment Terms: Net-30
• Account Opened: June 2023
• Current Balance: $1,200
• Highest Balance: $4,500

Payment Performance

This section reveals whether the business pays on time:

• Average Days to Payment: 27 days
• Average Days Beyond terms: 0
• Payment Pattern: Consistently pays before due date
• Current Status: Account in good standing

Purchasing History

• Average Monthly Purchases: $2,000
• Total Transactions: 24 in last 12 months
• Ordering Pattern: Regular monthly orders

Understanding these details helps other suppliers assess risk when extending credit to your business. A positive reference like this example demonstrates consistent ordering patterns and on-time payment behavior – exactly what other businesses want to see.

Trade Reference vs Credit Reference: Is There a Difference?

Trade references and credit references are very similar, and there is some overlap between the two. (A credit reference can include a trade reference.) 

But there are also some differences.

Trade references specifically focus on payment relationships between businesses and their suppliers, showing how a company manages vendor payments and trade credit. For example, a trade reference might detail how consistently your business pays its office supply vendor within their 30-day terms.

Credit references, on the other hand, include a broader range of credit accounts. These can include small business loan references, business credit card accounts, and even lease payments. Think of credit references as the complete picture of how your business handles credit, while trade references zoom in specifically on supplier relationships and payment patterns with vendors.

For most small businesses, trade references often prove especially helpful when you’re trying to develop new supplier relationships or get vendor credit. They demonstrate your payment experience with exactly the type of credit relationship you’re trying to establish. However, maintaining strong trade and credit references together creates the most comprehensive evidence of your business’s creditworthiness, and helps build your business credit file. 

How Trade References Benefit Suppliers?

If your business extends credit to your customers—even for a short period of time—you can also use trade credit to help manage risk and build stronger business relationships. When done right, trade credit can be beneficial for  both you and your customers.

Before extending payment terms to new customers, evaluate their creditworthiness and set your own credit policy. If you’re used to collecting payment upfront for goods and services, you’re going to need to start carefully managing your accounts receivables so customers don’t take advantage of your business. 

Start with a credit application to gather essential business information. Consider purchasing business credit reports from commercial credit bureaus, and check existing trade references from other suppliers. (You don’t need your customer’s permission to check their business credit reports or scores.)

Bank references and financial statements can provide additional insight into a potential customer’s ability to pay. 

It’s smart to start cautiously with new customers to minimize the risk to your business. Consider offering smaller initial credit limits and setting shorter payment terms, like net-15 instead of net-30. As customers demonstrate reliable payment behavior, you can gradually increase their limits and extend payment terms. Regular monitoring their payments, and business credit, can help you both opportunities for growth and potential risks early.

Consider reporting payment history to credit bureaus – it benefits both you and your customers. When customers know you report to major credit bureaus, they’re often more motivated to pay on time. This transparency helps establish your business as a partner in their growth while strengthening the overall business credit system. Reporting can be mutually beneficial.

But anytime you extend credit, you take some degree of credit risk. 

Watch for early warning signs like delayed payments or unusual ordering patterns. Late payments from customers can hurt your bottom line, and if your customers don’t pay you, you may not be able to pay your own bills. 

Mistakes To Avoid With Trade References

One common mistake is to assume that “more is always better.” While you may be tempted to get as many business trade references as you can when you are establishing business credit, if you don’t do business with those companies often, you may not establish an active payment history and those references may not be as valuable as ones from companies with which you regularly do business. 

Another common mistake is to assume that all trade references report to all business credit reporting agencies. That’s not often the case. Some companies report to some bureaus but not to all. For example, one vendor might only report to Experian or to the Small Business Financial Exchange. (Credit reporting is completely voluntary.) You may need to proactively seek out references from companies that report.

Another mistake some entrepreneurs make is to focus exclusively on building business credit, but ignore personal credit. Some lenders, like business credit card issuers, often check personal credit and if you don’t have good or excellent personal credit scores, you may have trouble accessing that type of credit. 

Best Practices for Checking Trade References

Trade reference checks help protect your business from payment risks, and they can cement your relationship with your customers by helping them manage their cash flow. 

Start with business credit reports for a comprehensive view of payment history and creditworthiness. These reports provide objective data about how a company pays other suppliers. 

For larger credit limits, you may want to check multiple commercial credit bureaus since payment information can vary between reports. 

When reviewing traditional trade references like supplier letters or verbal confirmations, always verify directly with the source. Contact the reference provider using publicly listed contact information rather than the phone number provided by the applicant. During these conversations, ask specific questions about:

• Typical payment timing
• Highest credit amount used
• Length of business relationship
• Any payment issues or disputes
• Current payment status

Look for inconsistencies between what customers claim and what their credit references reveal. If payment histories don’t match what’s claimed, or if a creditor doesn’t have information about a business that claims to use it, consider these red flags requiring further investigation.

Also remember that newer businesses often have limited trade references. Startups are risky, so you have to decide whether you want to start them off with a small credit limit while you carefully evaluate payment history, or wait until they establish credit somewhere else so you can verify their creditworthiness with a normal trade reference check. 

How Nav Can Help 

While trade references can be a great way to build business credit, they aren’t the only option. Business credit cards, for example, can be an excellent way to help build business credit. Find the best credit card for your business with Nav’s business credit cards page.

Nav Prime offers a great way to get started on your business credit building journey. You’ll be able to build, manage, and monitor your business credit, and you’ll get tradeline reporting automatically with your monthly Nav Prime payments. 

Get started now. 

FAQs

How are trade references different from trade credit?

Trade credit is when a business allows 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 related: 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 excellent 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.

Who should I use as a trade reference?

While any business can provide a reference for another business, not all will be accepted by credit reporting agencies or other creditors. Generally, a trade reference must come from another verifiable source. (A supplier can check the business credit report of the source just as easily as it checks the business credit of potential customers.)

Think of it like an employment reference: the person checking the reference wants to make sure the job applicant actually worked there.

Some companies will promise tradelines in exchange for payment, even though no legitimate business (beyond paying for the reference) has taken place between the companies involved. This is considered a form of credit fraud, and if the credit bureaus find out they may remove those references.

How do I find a trade reference?

If you are looking for trade references to help your business build credit, you can take one of two approaches:

1. Start with your current suppliers that you already do business with. Find out if they offer financing, and whether they report positive payment history to business credit, or will at least respond to an individual trade reference request. 
2. Seek out net-30 vendors that report to business credit. Nav can help you find easy net-30 vendors that report. 

Once you get one or more of these accounts, be sure to pay on time to build a positive business credit history. 

What does my trade reference mean?

Your trade reference shows your business’s payment track record with suppliers, including details like whether you consistently meet payment deadlines, how much credit you typically use, and how long you’ve maintained vendor relationships. A trade reference includes specific details like payment terms (such as net-30), your typical payment timing, highest credit limit used, and any late payments or issues.

Companies use your trade references as part of their approach to risk management. Strong trade references showing steady on-time payments can help you secure better credit terms, higher limits, and more favorable relationships with new suppliers. However, late payments or maxed-out credit limits might signal risk to potential creditors, making it harder to qualify for new vendor credit or favorable terms.