Right now we will tell you what a commercial reference is for in a credit application, credit applications for companies are very similar to those for individuals. The potential lender wants to make sure the business is financially healthy enough to pay off its debts.
When filling out a credit application, a company may be asked to provide its business references. These are decisive and very important when obtaining a loan in any financial institution.
On the other hand, a credit card where you can receive your payments can also help you get that credit. Since many stores apply this method for the convenience of their customers.
What is a credit reference?
Well, we will tell you what a credit reference is, it is actually a commercial reference for the company. In essence, a business reference can be a supplier.
The terms and conditions revolve around the way in which a provider allows a company to acquire its goods or services. Many times it is in a 30-day document, which means that the payment of any purchase to the supplier is due in a month a few days after the sale is made.
The number of commercial references required by a lender to grant a loan should generally not exceed three. A credit application generally requires three business references.
These can be from companies that are within the same industry as the suppliers or not. It is recommended that at least one business reference is within the same applicant company industry.
Primary and secondary references
There are commercial and secondary references, they can be primary or that provide the company directly, or they can be secondary suppliers.
Negative referrals to top vendors are more damaging than referrals from secondary vendors, despite whatever a negative referral it is, it is detrimental to any business.
Commercial references are a necessity, as most companies have open accounts with suppliers. This is the best way for both of you to see the results you hope to get.
Accounts with suppliers are not usually reported to credit companies as well as other open lines of credit such as loans.
These are generally not reported positively or negatively until the account is in poor health and collection activities have begun. Still, some providers do not report.
Business references are one way that lending companies assess the actual financial health of a business.
How lenders evaluate business references
Lenders will contact business references and obtain the same information on these accounts as they would for any other open credit line.
This includes: the amount of time the account has been open, the credit limit, and the number of times it has been paid late. These accounts are as good or as bad as anything that appears on your personal credit report.
It is for these reasons that companies must be very zealous in meeting their financial commitments when granting commercial credit, and they must honor all debt in a timely manner in order to have a line of credit open with any other company that may need.
In some countries, there are even some companies “accusing” of defaulters, these work because of receiving complaints from any company that wants to put a client in default.
For example, let’s say that this “accusing” company receives the name ” IRPEM ” Reference Institute for Delinquent Persons or Companies. If a bank called Banco Treasury will lend money to a company called ” The Victorious ” and the company does not cancel their commitments on time or simply let him pay the financial bank, the bank may denounce IRPEM.
When ” La Victororiosa ” wants to get another loan with another bank, or in any business, they will surely require that he bring a solvency issued by IRPEM, then, since he cannot get said solvency, or take it even if it shows a negative reference, then the credit you were requesting will be automatically denied.
This is a very compelling reason to encourage individuals and businesses in general to try to never be bad with their credit commitments. A recommended option is to use a letter of credit to pay these debts.
Well, this brings as a consequence, closing the doors with other entities that could even save them from financial bankruptcy.
There are people or companies that, knowing that they are accused in this type of “accusing” company, are forced to change their business name, seeing that they have all the doors closed.
But this type of action sometimes transcends and may not even reopen another company under another name. In these cases that are not so atypical, people must resort to a last resort which is to open the new company in the name of a third party.