What Are Trade References? Why Do They Matter to My Business?

When a company decides to do business with another, they will often check trade references as an assurance that they will get paid. 

Trade references are normally included in credit reports. For example, the CTOS report contains a section on trade references for companies and individuals. CTOS also has an electronic trade reference (eTR) platform that CTOS Credit Manager subscribers can submit references to.  

Who Makes Trade References? 

For a company, its creditworthiness is determined using credit reports issued by credit reporting agencies like CTOS, compiled from information issued by financial institutions regarding repayment history, loan utilization etc.  

But unlike such credit reports, trade references are issued by the entities that the company does business with on a day-to-day basis, e.g. suppliers, vendors, business partners etc. Trade references are most frequently provided by suppliers that extend credit terms to the company.  

In addition, trade references often give the greatest insight into the true health of a company. For example, if a struggling company has failed to pay their supplier even after 90 days of credit terms and several follow-ups, the supplier may submit a negative trade reference to CTOS eTR database. 

In Malaysia, trade references can be submitted to a credit reporting agency for debts exceeding RM300 and overdue for more than 60 days. 

Why Do Trade References Matter to My Company? 

Since it is so common to extend credit terms, suppliers will invariably check your company’s trade references to build a complete picture of your creditworthiness. This is to ensure that you can pay back their debts on time and in full.  

If there are no negative trade references, your suppliers are more likely to extend favourable credit terms, e.g. 90 days instead of 30 days’ credit. However, for a business with several trade references on record, a supplier may insist on cash upfront. 

Conversely, if you are a supplier, and your customer owes you an outstanding debt of more than 60 days, you may proceed to submit the amount owed via a trade reference. This will create a credit barrier for your customer to get loans approved from banks, or obtain credit from other suppliers which will automatically give the customer an urgency to pay off the debt.  

Subscribe to CTOS Credit Manager now to improve your bad debt recovery with CTOS eTR!