{"id":30795,"date":"2025-06-04T14:13:05","date_gmt":"2025-06-04T18:13:05","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=30795"},"modified":"2025-06-04T14:13:06","modified_gmt":"2025-06-04T18:13:06","slug":"good-and-bad-trade-references","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/good-and-bad-trade-references\/","title":{"rendered":"How to spot good and bad trade references when extending credit"},"content":{"rendered":"
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Business trade references play an important role in creating an accurate picture of a company\u2019s payment practices. They can sometimes be your most powerful and valuable source of information when determining customer creditworthiness. However, just because a business has a credit reference to offer doesn\u2019t necessarily mean it\u2019s a good one. Here\u2019s how to distinguish between good and bad trade references and key questions to ask before extending business credit.<\/p>\n\n\n\n

One good indicator of the difference between a good and bad trade reference is its origin. If the business can provide a credit reference from within the same industry, that is a good indicator of how quickly you will get paid. If they provide a reference from outside the industry, such as their electric company, it may not be as indicative of their payment history since you must pay the electric bill to keep it on. These, of course, are not the only types of businesses that can be valuable credit references; below are a few other examples of good and bad sources of information.<\/p>\n\n\n\n

What makes a good trade reference?<\/h2>\n\n\n\n

A good trade reference gives you a solid understanding of a company\u2019s ability and likelihood to repay credit. But what sets a good reference apart from a bad one? The key lies in the source of the reference and the relevance of the information provided.<\/p>\n\n\n\n

One of the best indicators of a valuable trade reference is whether it comes from a business within the same industry. Industry-specific references are the most useful because they reflect payment practices similar to your experience when dealing with this company. A reference from an unrelated sector\u2014such as their electric company\u2014may not give you the full picture, as paying utilities is mandatory. While such references are important, they don\u2019t always shed light on payment behaviors tied to trade credit.<\/p>\n\n\n\n

Examples of good business trade references<\/h2>\n\n\n\n

Now that we know the source of the trade reference matters. Let\u2019s look at specific examples of good trade references that can provide relevant insight into a company\u2019s creditworthiness.<\/p>\n\n\n\n