Trade reference etiquette
July 5, 2012 11:15 AM   Subscribe

A question about the etiquette of supplying trade references on wholesale credit application forms.

I'm starting a very small, very part-time online store. Most vendors are asking for several trade references on their wholesale application forms. Is it acceptable for me to simply list some other vendors with whom I've done business, or do I need to ask the other vendors in advance whether I can use them as a reference, like I would on a job application?

I know this is kind of a trivial question but I am having a difficult time finding the answer, and I've never done any wholesale purchasing before.
posted by enn to Work & Money (6 answers total)
Best answer: My friend who started a food store says that there's no need to ask the other vendors in advance, that it's just an expected part of having done business with someone before.
posted by bubukaba at 11:29 AM on July 5, 2012

Best answer: I have experienced this situation from the other perspective, since I work in the finance department of a managed services company. Several times we've been contacted by vendors because it turns out our customers used us as a credit reference without telling us. Amusingly enough, sometimes these are customers who have missed some invoices. When this happens, we are completely honest about it - what else can we do? Lie to protect the reputation of a customer who isn't good about paying us?

I would suggest contacting your vendors first - partially as a courtesy to them, but mostly to make sure you haven't accidentally misplaced any invoices that are still unpaid. If you have, it could really come back to bite you later.
posted by wolfdreams01 at 11:33 AM on July 5, 2012

Response by poster: Thanks, both of these answers are really helpful.
posted by enn at 1:13 PM on July 5, 2012

Yes, all companies that extend credit to customers periodically get calls "This is XYZ company; ACME company listed you as a trade reference." Companies have different policies about giving out the info, but almost all companies will tell another company a) whether you pay within terms and b) what your credit limit is, if they are satisfied that you asked XYZ company to call. It's not exactly like consumer credit where there's a lot of regulation around it.

But yeah, make sure of two things about the references you give out:

- you've consistently paid them on time (I wouldn't ding a customer over one or two lates, but if they habitually paid late, I'd say "ACME company generally took 47 days to pay; our terms are Net 30." Most A/R clerks have average days to pay at their fingertips in the software. So choose vendors you've paid on time.

- if you pay by cash, check, or credit card in advance, that vendor doesn't extend credit to you. In that scenario, I'd have to tell XYZ company that we do business with ACME on a cash basis. Not a negative, but no help either.
posted by randomkeystrike at 1:53 PM on July 5, 2012

I've done this on a previous job. Disclaimer: several years ago, regulations and/or the general environment might have changed.

Short direct answer to your question: yeah, just list 'em. It's usually informal and not a big deal.

It's not exactly like consumer credit where there's a lot of regulation around it.

This is true. There are several indirect things that govern what you can't say when giving a business reference: obviously, you can't give false information, for example. Also, two businesses discussing pricing information could run the risk of violating anti-trust law, so you did not talk about pricing.

The 'template' for such a reference was simple:

Customer since: this is the date they originally applied for the account

Terms: net 30 or whatever. We could report if we offered a discount for fast payment, like 1% 10 net 30 (1% discount if paid in 10 days, total due in 30 days).

Credit Limit

High Balance

Current Balance

History/Current Past Due: How quickly do they pay?

Note that if it was a cash customer, we might say something like "C.O.D. Customer's Request" to indicate that the customer had never applied for credit, as opposed to "C.O.D. Our Request" to indicate that we had turned the customer down for credit or cut them off.

Some items like court judgment, bankruptcy filings or bounced checks could be reported, too. If a court judgment was satisfied, we would report that. Note that information about anything that goes to court is probably available through other sources as well.

We would use automated business credit reports to research customers as well, from TRW and Dun & Bradstreet. These have a cost involved, so on smaller customers or people who were obviously just starting out and wouldn't have a report, we wouldn't bother to run one.
We also reported credit histories to be included in these reports.

If the business was a sole proprietorship owned by an individual, or in some cases where a small or new incorporated business had no history and the principal owner was willing to guarantee the debt personally, we'd often run a personal credit report and if it was okay, grant credit based on that. We'd only do this if the principal signing for the account was legally, personally responsible for the debt. We did not report the debts to consumer credit bureaus (but court judgments or other public records could get reported independent of what we did).

This is only my personal experience, policies at different companies can and will vary.
posted by gimonca at 2:28 PM on July 5, 2012

Oh please please PLEASE . . . call the companies you want to use before you list them.

Get the contact info where the reference needs to go - you might deal with John in Denver but the references are filled out by Jane in Chicago.

Get the format that will get the fastest result - if your vendors will fill out a fax, get the right fax number (see above), if they have a website/log in situation get that info. If they don't fill out requests or only report to an agency or bureau (D&B, NABC) well, don't use them.

Once you have a list of vendors to use, review the list every year or so and make sure you a) still use that vendor and b) the contact info is okay. General rule of thumb - don't include a vendor if you haven't purchased from them in the last 6 months (1 year if you're in a seasonal trade)

A well crafted credit reference sheet is a thing of beauty
posted by jaimystery at 5:23 PM on July 5, 2012

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