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No one realized when the year started that a crushing recession would follow a global pandemic. And yet, here we are living in this post COVID-19 world. Here’s how a good D&B business credit file can help you survive.
When it comes to your business, business credit is one of the most important things you can focus on. Of course, you should keep your main focus on actually running the business. In hard times however, like during a recession, you will be glad you paid some attention to your business credit. Dun and Bradstreet is the largest and most widely used business credit reporting agency, or CRA. If you do not have a D&B business credit file, many lenders consider you to not have credit. There are other CRAs that are worth mentioning however.
It can help to understand a little more about business credit and how it can help in a recession. What makes it so special? Who needs it? How do you get it?
There are a number of reasons why it is important to actively build business credit.
It is important to organization success that you develop business credit. Without a business credit score, your capability to fund your business rests entirely on your individual credit score. That’s not a big deal if you have great personal credit.
However, business financing can impact your personal credit scores as well. If you finance your business on the merits of your personal credit, you will likely find your balances stay near your limits. On personal cards the limits are not as high as most business cards allow.
Discover our business credit and finance guide, jam-packed with new ways to finance your business without emptying your wallet. Save your money during the recession!
This has a negative effect on your credit report. It is true even if you are making your payments on time. If your business has its very own credit report, it’s not a problem. Limits are higher, so you have a lot more credit to deal with. Regardless, it doesn’t impact your personal credit score.
When you have solid business credit, you have access to the funds you need to run your business. Not only that, but you can do what you need to do without worrying about exhausting cash reserves.
In short, business credit opens the door to higher limits, lower interest rates, and it protects your business transactions from affecting your personal credit. This is especially important during a recession. Imagine how much harder hard times would be if your personal credit was declining due to business issues.
It is also difficult to see how a D&B Business credit file, or any business credit file, is necessary if you do not understand the differences between business credit and personal credit. We break it down here.
Besides being the largest and most commonly uses, they offer way more than just a single business credit score. There are many reporting options that lenders can choose from to assess the credit worthiness of a specific business. Here is a breakdown of what they offer, with an explanation of what it all means.
The quick answer is they provide lenders with business credit reports to help them make lending decisions.
There are six different Dun and Bradstreet reporting options. All of them measure different areas of credit worthiness. The most popular option is also the easiest to understand. It is the PAYDEX. Generally speaking, this is the Dun and Bradstreet credit score most like the consumer FICO score. It measures the speed of payment. The score ranges from 1 to 100. A 70 or higher is “good.” For example, a score of 100 means that the company makes payments in advance, and a score of 1 indicates that they pay 120 days late, or more.
In addition to the PAYDEX, there are many other options for a business credit report on you D&B business credit file.
The delinquency predictor score measures the likelihood the company will not pay, will be late paying, or will fall into bankruptcy. The scale is 1 to 5, and a 2 is good.
The financial stress score is a measurement of the pressure on a company’s balance sheet. It indicates the likelihood of a shutdown within a year. It measures with a minimum of 5 and a maximum of 1, with a score of 2 being a good thing.
This is a rating that ranks the odds of a company surviving 12 months. The minimum score is 9 and the maximum is 1. A score of 5 is good.
The credit limit recommendation shows a business’s borrowing capacity. It is a dollar amount recommendation for how much debt a company can handle. Typically creditors use it to determine how much credit to extend.
This is an estimation of overall business risk on a scale of 4 to 1. A two is good. The rating includes letters, the combination of which indicate a company’s net worth.
Even if there isn’t enough information on a business to assign a regular rating, Dun and Bradstreet will assign what they call a Credit Appraisal Score. This is based on number of employees. Another option is an alternative rating based on what data is actually available.
The different scores and ratings are based on information from a number of places. The first is the business itself, but they also tap into public records. A business must submit a financial statement to D&B before they can have a full rating. In the absence of that, they give a limited rating based on number of employees. For example, the rating would be 1R if the business has 10 employees or more, and 2R if they have less than 2 employees.
A composite credit appraisal may also be available in the absence of a financial statement in your D&B business credit file. A business is only eligible for a rating up to a 2 in this case however. You do not get a 1 rating without a financial statement.
You can also self-report trade references to D&B, in addition to financial statement. This makes it easier to build business credit faster. You will need a D-U-N-S number, of course. It is free and easy to get on their website.
Discover our business credit and finance guide, jam-packed with new ways to finance your business without emptying your wallet. Save your money during the recession!
The commercial credit score is the term used to describe the actual business credit score. It has three separate parts. Each predicts how likely the business is to default on bills or become delinquent. Following are the three parts and the scales by which they are ranked.
Measured on a scale of 101 to 670, it predicts the probability of a company becoming delinquent. A score of 101 is most probable, so that’s bad. A score of around 500 is good.
This is measured on a scale of 0 to 100. It measures the probability of delinquency as well, but against other companies in the Dun and Bradstreet system. A score of 1 is the highest probability compared to other businesses in the system, and most say a score of 80 is good.
This is a method of dividing businesses into classes based on the probability of delinquency. Companies in class 1 are the least likely to be delinquent. If you are in class 2, that’s good.
You hear so much about Dun and Bradstreet, it is easy to forget that there are other agencies that offer business credit reports.
They collect their information in ways similar Dun and Bradstreet, including: information from public records, financial data from the business, and payment history from creditors. In addition, they factor information about credit utilization, or how much credit a business is currently using versus how much they have available, into their calculation.
They then use the information collected to generate various scores, similar to those on your D&B business credit file, but not the same. These scores include the business credit risk score and the business failure score. The business credit risk score measures how likely it is that a business will become 90 days or more delinquent on bills over the next 12 months. It ranges from 101 to 992. The business failure score ranges from 1,000 to 1610, and it predicts how likely it is that the business will file for bankruptcy over the next year. The lower the score, the higher the risk.
Another score they offer is the business payment index. This is their version of the D&B PAYDEX, and it even runs on the same scale, 0 to 100. It indicates payment history over the past year. Different from the PAYDEX however, you have to reach a score of 90 or higher for it to be a “good” score.
Equifax also offers business identity reports that serve as confirmation that a company actually exists. It also verifies details such as the company’s tax ID, number of employees, and yearly sales.
Equifax does not allow business owners to request a report on their company. They decide themselves when to start a credit file on a specific company.
Your Experian report could be a lot different than the one from your D&B business credit file. Their credit ranking, Intelliscore, uses more than 800 variables to predict a company’s risk of defaulting or becoming delinquent. A 76 or higher is considered good with Intelliscore. That indicates a low risk of late payments or default. A score from 51 to 75 indicates a low to medium risk and 26 to 50 indicates medium risk. From 25 down 1 is medium high to high risk.
Intelliscore is considered a blended score of both the business and business owner’s information. It offers insights into a business’s public record findings, collections, payment trends, and overall business background. A major difference between Experian and the other two characters is that they do not ask businesses to self-report at all. Rather, they collect all the information themselves. Since it includes personal information, you do have to give permission for a lender to view this report.
Specifically, the Experian credit ranking gives insights into a company’s payment trends, public record filings, collections, and general business background. The result is a blended score calculated using both the business and business owner’s information.
Discover our business credit and finance guide, jam-packed with new ways to finance your business without emptying your wallet. Save your money during the recession!
Experian’s database has information on over 27 million businesses. Reports are generated with information from the database, which houses information on bankruptcy filings, payment history, collections, banking, insurance, and leases.
There has to be a minimum amount of information in the database about a business before Experian will generate a score for it. There must be at least one tradeline in the system, so you should definitely do business with a company that will report to Experian if you want to build business credit.
You can’t know or choose which one your lender will use to base their decision upon. That means it is important to build strong business credit with each one. While a lot of this is out of your control, you can choose which starter vendors you work with. Since not all starter vendors report to all credit reporting agencies, you need to make sure you do business with a variety that report to each one. Then you can be on your way to building strong business credit.
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It is possible to build business credit, even during hard times. Of course it’s easier to already have business credit when the hard times hit. However, if you find yourself in need of funding to get through this Covid caused rough spot, business trade lines in a recession can help.
When the economy heads south, it can seem impossible to build anything good. Most of us tend to go into survival mode, happy if we can just hang on. Building, growing, and expanding are the last things on our mind. The truth is though, you can use business trade lines in a recession to build business credit.
This can allow you to be in the unique position to take advantage of opportunities during a recession that others will not be able to benefit from, because they are still in survival mode.
Imagine, if a wholesaler offers a special on inventory and you have business credit that allows you to take advantage, while your competitor does not, you have a clear advantage. But how do you do it? How do you use business trade lines in a recession to build business credit? The simple answer is, the same way you do any other time. There is a little more to it however.
Before business trade lines in a recession will do you any good, you have to do some prep work. This prep work lays a solid foundation to build strong business credit on, even during a recession. If you skip this part, you are likely to find you can’t even get started with business credit. These first steps truly are essential before you can take advantage of the help business trade lines can offer.
These steps are best taken before you start your business, but if you are already up and running, all is not lost. Just start where you are.
You need to consider how your business is set up. For many new business owners, starting a business just kind of happens. You have something you do that you love, and you decide it’s time to use it to make money. You may find a location or start from your home. Likely you simply mingle funds in your personal bank account. You have a business name but the business address, email, and phone number are all the same as your personal contact information. It is sort of a natural progression.
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.
If you want to establish business credit, you have to be purposeful to set up your business separate from yourself. This means doing a few things differently.
First, you have to incorporate. Running as a DBA, sole proprietorship, or partnership really won’t cut it. You can choose from running as a corporation, S-corp, or LLC based on your specific needs, but it needs to be one of these three. Each one comes associated with a different cost and varying levels of protection, but each will serve the purpose of separating your business from yourself.
Next, establish separate contact information for your business. You need a business address, email, and phone number that is different from your personal address, email, and phone number. The phone number should be from a toll-free exchange, and your email address should be associated with your professional website. Do not use a free service such as Gmail or Yahoo, and don’t ignore the professional website part. These days, a poorly put together website can ruin a business.
After these first steps are complete you need to play the numbers game. In order to establish business credit, your business has to have two numbers associated with it. The first is an EIN. This is an identifying number for a business, similar to a social security number. You can get one for free on the IRS website.
The next is a DUNS number. This is a number assigned by Dun & Bradstreet, the largest and most commonly used business credit reporting agency. To have a business credit file with them, you must have a DUNS number. You can apply for it for free on their website, but note that they will definitely try to sell you other services. Be strong. The number is free and the other services are not necessary.
Open a separate bank account for your business. This is the account through which all business financial transactions should run. If your business is already up and running, it may take you some time to get everything switched over, but it will be worth it. Not only will is help separate your business from your personal credit, but it will also help tremendously when it is time to do your taxes.
Okay, so these steps ensure that your business is on record as a business at all the right places. As soon as something credit related is reporting, it will have a place to go. How do you get something reported though? You need accounts that will report your on-time payments. Lenders will not even consider extending you credit however, if you don’t have a credit score, or if your credit score is bad. How do you break into the circle?
You can find a tiny crack with business trade lines in a recession. These are vendors that sell things you use in the everyday course of business, and they are vital to building business credit. Here’s how it works. They will extend net30 terms on invoices, without a credit check, and then report your invoice payments to the business credit reporting agencies.
For most of these vendors, you will have to make a few initial purchases before they will extend net30 terms. Some want to see a minimum time in business or a certain revenue level as well. We have compiled a list of six easy approval options to help you get started with business trade lines in a recession.
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.
This company sells eBooks, software, and even office supplies. You do have to register to see their products, but the process if fast and easy. You will have to make a $75 or more initial purchase to be eligible for a net30 account of up to $1,000 for a new business. The credit line can increase in increments of $500 if balances are paid in full and on-time. Strategic Network Solutions reports to Experian and Credit Safe.
Granger industrial Supply sells industrial equipment for outdoors as well as standard tools, and more. To gain net 30 approval you will need a business license, a DUNS number, and bank reference. They report to Dun & Bradstreet.
Another office supply provider, you can order anything from paper to staples, pens to printer ink, and pretty much anything you can think of in between from Summa. They require a $75 initial purchase, and will approve up to $2,000 on net 30 terms. They report to Eqifax and D&B.
Quill also sells standard office supplies. You will need to make an initial purchase. They’ll usually put you on a 90 day prepay scheduled, but after ordering for 3 months in a row, they’ll typically approve net 30 terms. They report to Dun & Bradstreet.
Uline sells a lot of things, but they specialize in packing and shipping equipment and janitorial supplies. You’ll need to place an initial order, and they do ask for a bank reference and two other references. They report to Dun & Bradstreet, so you’ll of course need a DUNS number too.
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.
Using business trade lines in a recession is all part of the working with starter vendors. After you have a few of these accounts reporting, you can apply for store credit card accounts, then the fleet cards, and finally general use cards. Here’s what you need to know about each type of card, and what happens when you get to the top.
It’s hard work to get something going. Rolling a tire, pushing a car to jump start it, and starting a business all take an extra exertion of energy. Once a thing is going, you can sort of set it on cruise control. Store cars are the beginning of your business credit cruising phase.
In building business credit, after you have enough business trade lines in a recession, you can start applying for store credit. These are credit cards issued by specific retailers such as Office Depot and Best Buy. Apply for these accounts, purchase things you need in the everyday course of running your business, and make your payments on-time. Your business credit score will grow stronger by the day.
Keep cruising through and after enough store cards are reporting, apply for fleet cards. These cards are issued by fleet companies such as Shell and Fuelman. They can be used to purchase gasoline or for automobile maintenance and repairs. Once you have enough of these accounts reporting, it’s time for the general use cards.
General use credit cards are end game. Hold the wheel steady, and you can cruise here forever. These cards consists of the traditional Visa, Master, and American Express cards not associated with a specific store or type of purchase. Use this wisely, continue to make consistent, on-time payments, and your business credit will be rock solid.
Setting the cruise doesn’t mean you get to be disengaged. Building business credit with business trade lines in a recession takes a lot of work. It feels good when you have a business credit score that is building quickly and you can relax a little. You don’t have to work as hard, but you still have to steer, and watch the signs.
Neglecting to make payments consistently on-time could throw you in a ditch. You’ll have to climb out and start all over again. Be careful.
You may be asking yourself the question, why bother? You may have personal credit that will allow you to get what you need to run your business without needing to work with business trade lines in a recession. It can take time, and better prices may be available elsewhere. What’s the point? Why do you need business credit?
The fact is, it’s never a good idea to have your business transactions on your personal credit report, recession or not. There are a few reasons for this. First, if your personal credit takes a hit, it can affect your ability to run your business.
Also, business credit cards based on personal credit often have a lower credit limit, and business transactions are often very large. If you get close to your limit, your score will take a hit even if you make your payments like you should due to the high debt-to-credit ratio.
By having cards based on your business credit, you can get higher limits, and your personal credit will not be affected by business transactions. This way, you do not have to worry about business transactions keeping you from applying for personal credit you may need to purchase a car or make home improvements.
Regardless of your personal credit score, you really do have to work with business trade lines in a recession to start your business credit. After you establish your business and prepare the way for your business transactions to be reported to your business credit profile, you will need accounts to report. Most credit cards will not extend credit to a business with no credit, or bad credit. Working with business trade lines that do not do a credit check is a way around that. You can start building business credit in your business name without your personal credit score ever being involved. It’s a win/win for you and for your business.
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Regardless of whether you are an existing business or a startup, your business needs its own credit. The problem is, a lot of owners are unsure of how to start building business credit. There are companies that help build business credit, but if you aren’t careful you will get scammed. You should always know what you are paying for, and if it is worth it, or not.
Lenders are becoming more picky and there are more automatic denials than ever before. Working with an insider familiar with the system can help tremendously. It can help everything go faster and it can minimize denials. Your time is money – working with a company to help build business credit can be a wise investment. But there are things you should know.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession.
First and foremost, you should always know exactly what services you are paying for. The truth is, some “services” just aren’t worth it. For example, you should never pay a company to report your payments to the business credit reporting agencies. There are plenty that will do that for free. However, they do not usually advertise that they do that, nor do they typically make public which companies they report to. Paying someone to help you find these companies? That is worth paying for.
There are a few reasons why it’s a good idea for your business to have credit separate from your personal credit. First is protection. If your business goes south, it will not directly affect your personal credit. You can still buy a home and a car other things you need to based on your personal credit.
Also, business credit almost always has higher limits. If you try to finance a business on personal credit cards, you will likely stay at or even go over the credit limits on your cards. This will affect your debt-to-credit ratio in a bad way. That, in turn, will negatively impact your personal credit.
We’ve established why you should not pay anyone to have your on-time payments reported. While no company has to do that, there are plenty that will, and they do it for free. Here are some other things you should never pay for.
The thing is, business credit doesn’t just happen in the same way that personal credit does. It has to be intentional, and there is a process to make it all come together. It is a complicated web, and before you can understand why certain things are worth paying for, you have to understand little about what it takes to build business credit and make it all work.
Your business needs to be set up in just the right way to be fundable. I like to call this the foundation of fundability. If you do not have a fundable foundation, payments may be reported, but there will be no record of your business with the business credit reporting agencies so they will not know how to apply it. Here is what it takes to have a fundable foundation.
The first step in setting up a foundation of fundability is to ensure your business has its own phone number, fax number, and address. That doesn’t mean you have to get a separate phone line, or even a separate location. In fact, you can still run your business from your home or on your computer if you want. You don’t even have to have a fax machine.
Actually, you can get a business phone number and fax number pretty easily that will work over the internet instead of phone lines. In addition, the phone number will forward to any phone you want it too so you can just use your personal cell phone or landline if you want. Whenever someone calls your business number it will ring straight to you.
Faxes can be sent to an online fax service. That is, if anyone ever happens to actually fax you. This part seems outdated. However, it does help your business appear legitimate to credit providers.
You can use a virtual office for a business address unless like Supply Works, the credit issuer does not accept a virtual address. Many do accept them though. How do you get a virtual office? It’s not what you may think. This is a business that offers a physical address for a fee, and sometimes they even offer mail service and live receptionist services. In addition, there are some that offer space for face to face meetings.
The next thing you need to do is get an EIN. It’s an identifying number for your business that works like your SSN works for you personally. You can get one for free from the IRS.
Dun & Bradstreet is the largest and most commonly used business credit reporting agency. Every credit file in their database has a D-U-N-S number. To get a D-U-N-S number, you have to apply for one through the D&B website.
Incorporating your business as an LLC, S-corp, or corporation is not negotiable. It lends credibility to your business as one that is legitimate, and also offers some protection from liability.
Which option you choose does not matter as much for getting a net 30 account with companies that help build business credit. What it does matter for is your budget and needs for liability protection. The best thing to do is talk to your attorney or a tax professional. Fair warning, you’ll lose the time in business that you already have once you incorporate. When you incorporate, you become a new entity. You basically have to start over. You’ll also lose any positive payment history you may have accumulated before you incorporate.
For this reason, you have to incorporate as soon as possible. Not only is it necessary for fundability and for building business credit, but so is time in business. The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business.
You have to open a separate, dedicated business bank account. There are a few reasons for this. First, it will help you keep track of business finances. It will also help you keep them separate from personal finances for tax purposes.
There’s more to it however. There are several types of funding you cannot get without a business bank account. Yu probably noticed that most of the companies above require one. In addition, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit card payments. Studies show consumers tend to spend more when they can pay by credit card.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession.
For a business to be legitimate it has to have all of the necessary licenses it needs to run. If it doesn’t, red flags are going to fly up all over the place. Do the research you need to do to ensure you have all of the licenses necessary to legitimately run your business at the federal, state, and local levels.
I am sure you are wondering how a business website can affect your ability to get funding. These days, you don’t exist if you do not have a website. Yet, having a poorly put together website can be even worse. It is the first impression you make on many, and if it appears to be unprofessional it will not bode well for you with consumers or potential lenders.
Spend the time and money necessary to ensure your website is professionally designed and works well. Pay for hosting too. Don’t use a free hosting service. Also, your business needs a dedicated business email address. Make sure it has the same URL as your Website. Don’t use a free service such as Yahoo or Gmail.
Here’s another reason why a website is important. Elsewhere on our blog, there is actually a comment about a company asking for a website to help make the decision to extend, or not extend, net30 terms.
You’ll notice many of these things are listed in the requirements of our list of companies that help build business credit. These are all things that you need for a variety of reasons, including to make your business more fundable.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession.
This is just the start. There are so many other factors that affect the fundability of your business and business credit that it can be completely overwhelming. This is why it can be very profitable in the long-term to pay a company to help you through the process. Most of the time they do not actually complete the steps for you, but they can help you get where you need to be and tell you what to do once you get there.
This is crucial. You don’t waste time with companies that don’t report, and you know what is reported is showing up in the right place. There is so much more though.
The lending world is changing fast since COVID-19 hit. Lending has been cut drastically, and more changes are happening everyday. Having someone who knows how to navigate the system and both current and future changes is priceless.
All of the things mentioned above are necessary, and many of them have to happen in the right order. If something gets out of whack, it can take even more time and money to fix it. Paying someone to help you get it right the first time, or help untangle a mess that is already there, is well worth it.
It’s more difficult than a simple Google search. You need to know which accounts will report that you are actually eligible for. Otherwise, you will spend a lot of time applying for accounts that you either cannot get, or that you can get but do not report.
A lot of companies will just give you a list of lenders with products they hope you qualify for. You have to fill out the applications on your own. Why would you pay for that? What’s worth paying for is a company that has a list of lenders for whom they know the underwriting requreiments. Then, as you work through the credit building program, they cross-reference so they know exactly where you pre-qualify and fill out the applcaitons for those lenders for you! Now that’s worth paying for!
Fundability doesn’t stop with how your business is set up. In fact, the overall fundablity of your business actually begins before you ever have a business. This is because a lot of personal stuff can affect your ability to get funding. That’s true even if you have separate business credit.
Building business credit doesn’t just happen. Unlike consumer credit, you have to intentionally work to start and build it. Having a partner come alongside you and show what to do at each step is priceless.
Lenders are buckling down and there are more automatic denials than ever before. You are more likely to get an automatic denial rather than an automatic approval. Having someone familiar with the system, an insider if you will, can help tremendously.
Unlike consumer credit reports, there is no way to know what your business credit report says about you or what your score is without paying. You can pay the credit reporting agencies directly, but it works much better to pay a monitoring service that can help you keep up with your business credit on an ongoing basis. We can help you monitor your credit at Experian and Dun & Bradstreet for less than it would cost you at those business CRAs.
The bottom line is, paying companies that help build business credit can be useful. They have more time, knowledge, and experience. It can save you a lot of time and money in the long run, if you know and understand exactly what it is you are paying them to do.
As you can see, it takes a little more work than just getting accounts reporting to build business credit. Your business has to be set up properly for the reporting to matter. Then, you have to keep a close eye on your business credit reports to ensure things are progressing.
It’s not a complicated process, but it takes time. The best thing to do is to set your business up to be fundable before you ever get started. Then, you should meet most of the requirements related licensure, business bank account, business address, and website. It can be extremely helpful to have guidance and help as you go through the process. Let us help you build business credit. Find out how.
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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.
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.
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.
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.
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.
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.
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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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 [].
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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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.
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.
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.
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
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.
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.
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