Summary
You can ask any supplier that gives your applicant credit terms to confirm how that customer pays them. That supplier is a trade reference. It tells you when the account opened, the credit limit or highest balance, the current balance, any amount past due, the payment terms and how promptly the customer pays.
- What to ask: Account open date, limit or highest balance, terms, current and past due balance, days to pay, and any credit holds.
- How many: Two or three references from suppliers in the same trade, with at least one that gives real credit terms.
- No reply: Silence is not a bad reference. Chase once, ask for a replacement, then decide with a smaller first limit.
A new customer sends back your credit application with three suppliers listed under trade references. You email the first one and hear nothing. Meanwhile the customer asks when their account will be ready, and your sales rep asks why the order is waiting.
Here is what a trade reference is, what to ask each referee, a request email you can copy, and how to read a slow or missing reply.
What is a trade reference?
A trade reference is a supplier or vendor that gives a business credit terms and confirms, when asked, how that business pays them.
It is the business version of a personal credit reference, and one input to the five Cs of credit. A new supplier uses it to judge how the applicant will pay. Most guides are written for the applicant who wants terms. This one is written for you, the supplier who has to check the reference and decide.
Free: Payment reminder email templatesCopy the reminder emails for before, on and after the due date.What is a trade reference on a credit application?
On a credit application, the trade reference section is where the applicant lists other suppliers who give them credit, with a contact name, phone number and email for each.
The applicant also signs an authorization that lets you contact those suppliers. Get that signature before you call anyone. Our credit application form template includes the reference section and the authorization wording, so this post does not repeat it.
What information does a trade reference give?
A trade reference gives the account open date, the credit limit or highest balance, the payment terms, the current balance, any past due amount and how promptly the customer pays.
Dun & Bradstreet lists seven base fields for each trade reference it accepts: the as-of date, manner of payment, rolling 12 month high credit, current amount owing, current past due, selling terms and date of last sale (D&B). Ask for the same fields and you can compare references like for like.
What are examples of trade references?
Good trade reference examples are suppliers in the applicant's own trade that ship on credit terms, such as a materials wholesaler, a parts distributor or a freight company.
- Strong: a wholesaler or distributor in the same industry, on net 30 or longer, with regular orders.
- Useful: freight, packaging, uniform or equipment hire suppliers, and professional services billed on account.
- Weak: utilities, phone companies, landlords and software subscriptions. They are often paid by direct debit, so they say little about how the customer pays an invoice.
Sage's guide to good and bad trade references makes the same split: banks, insurers, real estate companies and utilities tell you less about trade credit behavior.
How many trade references should you ask for?
Ask for two or three trade references, and require at least one from a supplier in the same industry that gives real credit terms.
Two is enough for a small first limit. Ask for three when the limit is large, the customer is new to you, or one reference is a related company. More than three slows the application down without telling you much more, because you will chase the extra referees too.
What questions should you ask a trade reference?
Ask a trade reference for numbers, not opinions: when the account opened, the limit, the terms, the balance, the days to pay, and whether supply was ever stopped.
| Question | What a good answer looks like | Warning sign |
|---|---|---|
| When did the account open? | More than a year ago, with regular orders since | Opened a few weeks before the application |
| What is the credit limit, and the highest balance in the last 12 months? | Close to the limit the applicant asked you for | A small limit, or cash only |
| What are the payment terms? | Credit terms such as net 30 | Prepay or cash on delivery, or terms recently shortened |
| How many days do they take to pay? | Within terms, or a few days over | "They get there eventually" |
| What is the current balance, and how much is past due? | Nothing past due, or a small amount with a reason | A large past due balance with no reason given |
| Have you ever put them on hold or stopped supply? | No | Yes, or "not recently" |
| When was the last sale? | In the last month or two | A dormant account with no recent orders |
| Are you connected to the business? | No shared owners, staff or address | Same director, same address, or a family member |
Most guides skip the last question, but it matters. An applicant picks their own referees, so a related company or a friendly supplier on a tiny account can look like a clean reference. Find the referee's phone number yourself, from their website, rather than using the number on the form.
What should a trade reference request email say?
A trade reference request email should name the applicant, say they gave written permission, and ask a short list of questions the referee can answer in two minutes.
Subject: Trade reference request for [Applicant legal name]
Hi [Referee name],
[Applicant legal name] has applied for a credit account with [Your business] and listed you as a trade reference. Their signed authorization for us to contact you is attached.
Could you reply with:
1. Date the account opened
2. Credit limit, and highest balance in the last 12 months
3. Payment terms
4. Current balance, and amount past due
5. Average days to pay
6. Any credit holds or stopped supply
7. Date of last sale
We will keep your answers confidential and use them only for this credit decision. A reply by [date] would help us open their account.
Thanks,
[Your name]
[Your business] | [Phone]
Send it from a business email address and attach the signed authorization. Many credit teams will not answer without it.
How should you read a slow or missing reply?
A slow or missing reply from a trade reference gives you no information, so do not count it as a bad reference.
Large suppliers often answer only by written request, or not at all. Dun & Bradstreet treats a referee it cannot reach as no reference: the submission is not accepted, and it tries again later (D&B). Do the same.
- Send the written request with the signed authorization.
- If there is no answer after two business days, call the referee's accounts receivable team on a number you found yourself.
- If there is still no answer, ask the applicant to nudge the referee or name a different supplier.
- Do not hold the application open forever. Decide with what you have, and set a smaller first limit.
Some replies tell you more than silence. A quick reply that says "they're fine" but gives no numbers needs one follow-up question. A referee who gives every number except days to pay needs a direct question about how fast the customer pays. A reply from a personal email address, for a business that has its own domain, is worth a phone call.
What if a customer has no trade references?
If a customer has no trade references, you can still give them credit with a smaller first limit, shorter terms, a personal guarantee or a deposit on the first order.
- Personal guarantee. A director guarantees the debt, which matters most for a new company. See our guide to a director's personal guarantee on a credit application.
- Bank reference. The applicant's bank confirms how long the account has been open and how it is run.
- Small first limit. Start low and raise it as they pay. Our guide on how to set a credit limit covers the sums.
- Watch the first invoice. In our data, customers who pay their first invoice on time pay about 73% of later invoices on time. If the first invoice is 1 to 14 days late, that falls to 39% (first invoice data).
What is the difference between a trade reference and a credit reference?
A credit reference is any source that reports how a business handles credit, and a trade reference is one kind: a supplier confirming how the business pays its invoices.
Other credit references include a bank reference, which covers account history and balances, and a business credit report from a bureau, which collects payment data automatically. A trade reference is usually confirmed manually, one supplier at a time. That makes it slower, but it is often the only record a small business has.
What do you do after the references come back?
After the references come back, set the trade credit limit and terms, write them into your ledger, and tell the applicant your decision.
In the US, trade credit falls under Regulation B. You must notify the applicant of your decision within a reasonable time, and give written reasons if they ask in writing within 60 days of your notice (12 CFR 1002.9). This is not legal advice, so ask a lawyer to review your own terms and decline letters.
Once the account is open, the references matter less than how the customer pays you. Paidnice credit scoring gives every customer a score from 0 to 100 from their payments. An escalation can fire when they breach the limit you set, so a person decides on a credit hold.
How do you collect trade references online?
Paidnice is running a beta program for credit applications, open to anyone interested, and trade references are one of the form sections we are building.
On the credit applications page, you choose how many references you need. The applicant lists their referees in the Trade references step. Paidnice emails each referee a short form automatically and puts the answers on the application, so you see them before you decide. Leave your email on that page to join the beta.
For the full setup, see opening a trade account for a customer.
💡 Paidnice insight
Most of the time a trade reference costs is spent waiting for a reply. Ask for numbers in the first email, attach the signed authorization, and set a date after which you decide without the missing referee.
Frequently asked questions
Can a customer give a related company as a trade reference?
They can, but count it as weak. Ask the referee if they share owners, staff or an address with the applicant, and ask for one more reference from an unrelated supplier.
Is it legal for a supplier to give a trade reference?
Attach the applicant's signed authorization to every request, so the referee can see the customer agreed to share their payment history. Rules on sharing customer information differ by country, so ask a lawyer about the rules where you trade.
How long should you wait for a trade reference?
Chase once after two business days, then ask the applicant for a replacement. Set a date in your credit policy after which you decide with the references you have.
Do trade references affect business credit scores?
Only when the supplier reports to a business credit bureau or the reference is submitted and verified there. A reply to your email stays between you and the referee.
Should you check trade references for an existing customer?
Usually not. Their record with you outweighs any reference. See how to check a customer's payment record before you raise their limit.
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About the editorial team
Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.
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