Questions to Ask for a Credit Reference
For a credit manager, bookkeeper or business owner about to extend trade credit to a new business customer and working through the trade references and bank named on its credit application. The list opens with the basics every reference should be asked, follows a trade reference call through the account itself, payment habits, problems and the questions to close on, and ends with what to put to the bank. The notes say which answers to measure against the limit you have in mind, and which refusals are only company or bank policy.
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The questions
Each question, and why to ask it
The basics
How long has this customer had an account with you, and when did they last buy?
Why ask it
A few years of steady buying with a sale in the last month or two is the answer you want. An account opened a few months ago tells you little, and one with no sale for a year describes a company that may have changed since. Write both dates down, because every later answer only covers that stretch.
What credit limit do you give them, and what is the highest balance they have carried in the past year?
Why ask it
The high balance is the more useful number, since a limit can sit unused for years. Compare it with what you plan to extend: a customer who has handled a few hundred with this supplier has not yet shown they can handle the several thousand you are about to offer. If the reference will not give figures, ask for a range.
What payment terms are they on with you?
Why ask it
You need the terms before the payment record means anything, since paying in 40 days is late on net 30 and early on net 60. Note any early payment discount as well. If every reference has them on shorter terms than you plan to offer, you have no evidence yet of how they behave on longer ones.
How do they pay against those terms: early, on time or late, and by how many days?
Why ask it
Press for a number of days, because 'they pay fine' can mean anything. A week or so beyond terms, every time, often points to a fixed payment run and is something you can plan around. Lateness that wanders from ten days to sixty is much harder to plan for.
What do they owe you today, and how much of that is past due?
Why ask it
Ask for the past-due part split by age if they have it: under 30 days over, 30 to 60, and older. A small amount a few days late is ordinary. An old balance sitting beside fresh orders deserves a follow-up about whether it is disputed or simply unpaid.
Overall, would you call the account satisfactory, slow, or one you keep an eye on?
Why ask it
Offering three labels makes it easier for a busy receivables clerk to pick the middle one than to volunteer a criticism. 'Satisfactory' with no hesitation is a good sign. A pause, or 'they always pay in the end', belongs in your notes word for word.
The account
Do you work on this account yourself, or are you going by what is on the screen?
Why ask it
Either is fine, but they are different kinds of evidence. Someone who works the account can tell you about phone calls and promises, while someone reading a screen can only give dates and balances. If the person seems to know nothing about receivables at all, check that you have reached the supplier's accounts office and not a friend of the applicant.
What legal name and address is the account under on your side?
Why ask it
Match it against the credit application. A history that belongs to a differently named company, an owner's personal account or an earlier business at the same address does not carry over to the entity that will owe you money. Raise any mismatch with the customer before you go further.
What do you sell them, and roughly how much in a typical month?
Why ask it
This tells you whether the reference is a core supplier or an occasional one. Customers tend to pay first the suppliers they cannot operate without, so a spotless record with the company that delivers their main material may flatter how they treat everyone else. Weigh it against how essential you will be to them.
What is the largest single invoice they have paid you, and did it come in on terms?
Why ask it
A customer can be prompt on a run of small bills and slow on the one big one, so a record built from small invoices does not vouch for a large order. Set the figure beside the first order you expect from them. If yours would be bigger than anything this supplier has billed, nobody you call has seen them handle it.
How often do they order: weekly, monthly, or a few times a year?
Why ask it
Frequent orders mean the record is built from many invoices, which makes 'pays on time' a stronger statement. A handful of invoices a year is thin evidence however clean it looks.
Did they start with you on open terms, or on prepayment or cash on delivery first?
Why ask it
A customer who began on cash and earned terms over time has a record that was built in front of the reference. If they were given terms on day one, ask what the supplier relied on then. It may be the very references you are now calling.
Is the account on open credit, or is it backed by anything, such as a deposit, a personal guarantee or a card on file?
Why ask it
A supplier holding security has taken less of a risk than you would on open terms, so their comfort is not a measure of yours. A guarantee from the owner hints at what an experienced creditor thought was needed. Whether and how you could ask for the same is a question for your own adviser.
Has their limit gone up or down since the account opened, and who asked for the change?
Why ask it
A limit raised at the customer's request and then used well is a record of growth. A limit the supplier cut, or an increase they turned down, is the part the applicant will not have mentioned. The date counts as much as the reason: a cut three years ago that was later restored is old news.
Is your company connected to theirs in any way, such as shared owners, family ties or a sister company?
Why ask it
Ask it lightly, as a box you check on every call. A connected reference may be perfectly truthful, but it is not an arm's-length opinion and should not count toward the independent references you need. If the answer is yes, ask the customer for another supplier.
Payment habits
Over the past year, has their payment speed held steady, improved or slipped?
Why ask it
The direction matters more than the average. A customer who used to pay in 30 days and now takes 50 is telling you about today's cash position, whatever the long record says. A slip that began in the last few months is the one to take back to the customer before you set a limit.
What is the latest they have ever paid you, and what was behind it?
Why ask it
Nearly every long account has one bad stretch, so a specific story with a reason, such as a lost invoice or a slow quarter, is reassuring. Listen for whether the customer warned the supplier in advance or went quiet. Going quiet is the habit that costs you.
Do they pay invoice by invoice, or send round amounts on account?
Why ask it
Payments that match invoices point to a working payables process. Round sums, such as a flat amount every Friday against a growing balance, often mean the customer is paying what cash allows and not what is due. They also make your own reconciliation harder.
Do they take early payment discounts, and have they taken one after the discount date had passed?
Why ask it
Regularly earning a discount suggests cash to spare. Taking it late and leaving the supplier to argue for the difference is a small thing that predicts a lot of small arguments. Skip this one if the reference offers no discount.
How do the payments arrive: check, bank transfer, card or something else?
Why ask it
A recent switch is the thing to listen for, so ask whether the method has changed in the last year. A customer who has moved from transfers to a credit card may be borrowing to pay suppliers. The answer also tells you which method to expect and what it would cost you to accept.
Does the money arrive without prompting, or do you have to chase it?
Why ask it
Two customers can both show 'paid in 45 days' on a ledger, one after no contact and one after four calls. The second costs staff time that belongs in your decision. If chasing is needed, ask how many reminders it usually takes.
When you do have to call about an invoice, who do you reach, and how quickly do they sort it out?
Why ask it
You want a name, a direct line and an answer within a day or two. 'It depends who picks up' or 'the owner approves everything and is hard to get hold of' tells you what your own collection calls will be like. Take down the contact's name, which may differ from the one on your application.
Do they keep within their limit, or do you find orders held because the balance is over?
Why ask it
A customer who regularly bumps the ceiling is either growing faster than their credit or using suppliers as a source of funds. Ask what happens next: a prompt payment to release the order is a good pattern, and pressure on the sales rep to ship anyway is not.
Are there months when they are reliably slower to pay?
Why ask it
Seasonal businesses often pay well in their busy months and stretch in the slack ones. Knowing which months lets you set a limit that fits the worst of the year, or tighten terms ahead of it. It also stops you misreading a slow winter as the start of trouble.
Problems
Have you ever had a payment from them returned, such as a bounced check or a rejected bank debit?
Why ask it
Once, years ago, and replaced the same week is a clerical story. More than once, or recently, is a cash story, and a reason to think about starting on prepayment or a small limit whatever else you hear.
Have you ever stopped shipping to them over an unpaid balance, or moved them back to cash terms?
Why ask it
A hold is the supplier's own verdict at the time, which is worth more than their summary today. One that lasted a week and ended with the balance cleared is very different from an account that drifts on and off hold every quarter.
Do they dispute invoices or take deductions, and when they do, is it usually justified?
Why ask it
Some disputes are the mark of a careful buyer, and the reference will say so. What to listen for is a dispute raised only once an invoice falls due, or small deductions taken without explanation. Both are ways of stretching payment that never show up as 'late' on a ledger.
Have they promised a payment by a certain date and then missed it?
Why ask it
Slow payers who keep their word are manageable, because you can plan around a date. Broken promises are the stronger warning: they take away the one tool you have once an invoice is overdue. One missed date in a long history is not a pattern, so ask how often.
Have you charged them late fees or interest, and did they pay those?
Why ask it
Mostly this shows how the customer reacts when terms are enforced. Paying the charge or negotiating it openly are both reasonable. Ignoring it, or threatening to take the business elsewhere over it, suggests your own terms will be treated as a suggestion.
Have you ever set up a payment plan with them for an old balance?
Why ask it
A plan the customer proposed and kept to the end can count in their favor. One imposed after months of silence, or that broke down part way, is the opposite. Ask whether any plan is running now, since that means some of their cash is already spoken for.
Has any balance gone to a collection agency or an attorney, or been written off?
Why ask it
A reference is unlikely to raise this unprompted and will often answer it plainly when asked. A yes does not always end the matter, but you need the date, the amount and whether it was ever paid. A supplier who still sells to them on terms afterward has a reason worth hearing.
Have you noticed any recent change at their end, such as new owners, new people in payables, or orders much larger or smaller than usual?
Why ask it
References describe the past, and this asks whether the past still applies. New ownership means the record belongs partly to people who have left. A sudden jump in order size can be healthy growth or a company loading up on credit, so put it to the customer directly.
Have other suppliers called you about them lately?
Why ask it
A burst of reference requests can simply mean the customer is growing and opening accounts. It can also mean existing suppliers have cut them off and they are looking for new ones. Either way, your invoice will be competing with several other new ones.
Closing the call
If they asked you tomorrow for a higher limit, would you give it?
Why ask it
A quick yes is the strongest thing a trade reference can say, because it comes from someone with their own money at stake. 'We are comfortable where we are' means the supplier has a ceiling in mind, so ask what it is. Some companies only give out facts and will pass on this one, which is policy and not a verdict.
Is there a balance at which you would start to feel uneasy with this account?
Why ask it
People who would never criticize a customer will often answer this, because it is about their own comfort. The number they give is a ready-made check on your limit. If they say there is none, ask whether that is because of the customer or because of security they hold.
Do you know who their biggest suppliers are?
Why ask it
The names on a credit application are the ones the customer chose, so this is how you hear of one they left off. Take any name back to the customer and ask to add it to the application before you call. A customer who will not let you call their main supplier has answered a question too.
Is there anything you would want to know about this account if you were about to extend credit to them?
Why ask it
Leave a silence after it. This is where a reference mentions the thing no form asks about: a change of owner, a lost contract, a difficult person in the payables office. If the answer is 'no, they are a good account', that is worth having in their words too.
May I note your name and today's date, and check back with you if they ask us for more credit later?
Why ask it
A reference with no name and date on it is hard to rely on in a year's time, or to explain if the account goes bad. It also makes the next call a two-minute one. Offer to return the favor when they need a reference on one of your customers.
The bank
What do you need from me before you can answer a credit inquiry on this customer?
Why ask it
Start here, because banks differ: some want a written request, some want the customer's signed authorization, some charge a fee, and some will not respond to trade creditors at all. Ask where to send it and how long a reply takes. If the answer is no, ask the customer to request a bank reference letter themselves.
How long has the business banked with you?
Why ask it
A long relationship is a mild positive and one of the facts a banker is most often willing to confirm. An account opened in the last few months is no mark against a new company, but for an established one it raises the question of why they moved. That one is for the customer, and the reason can be ordinary, such as a better loan offer elsewhere.
Is the account held in this exact business name?
Why ask it
Read the name from the application as written. The point is to confirm that the company asking you for credit is the one with the bank history, not an owner's personal account or a related company. Some banks will only confirm or deny, which is enough.
Which kinds of account do they have with you: checking, savings, a line of credit, a loan?
Why ask it
You are finding out whether the bank lends to this customer or only holds deposits. A bank that has lent to them has done its own credit review, which is a point in their favor, and is also a creditor that may stand ahead of you. Follow up on whichever kind they name.
What is the average balance on the checking account, as a range?
Why ask it
Bankers who answer at all often answer in ranges, such as 'low five figures' or 'mid four figures', so ask for it that way and ask what their terms mean. Set the range against a month of the credit you plan to extend. A balance well below one month of your invoices means they would be paying you out of next month's receipts.
Have there been overdrafts or returned items on the account in the past year?
Why ask it
'None' or 'handled as agreed' is the answer you hope for. Many bankers will decline this one, and a refusal is policy, not a hint, so do not read anything into it. If they do report returned items, ask whether they were isolated or frequent.
How large is their line of credit or loan with you, and how much of it is drawn?
Why ask it
Expect a range, not a figure, plus whether the facility is a revolving line or a term loan. A line that is always drawn to its limit leaves no spare borrowing room if a month goes badly. Unused headroom is the cushion that gets suppliers paid in a slow quarter.
Are the loans being repaid as agreed?
Why ask it
'As agreed' is a common banker's phrase for a loan in good order, and it is all you need. Anything more guarded, such as 'we are working with them', is worth writing down exactly. A customer behind with their bank is unlikely to put an unsecured supplier first.
Is the borrowing secured, and against what?
Why ask it
If the bank holds security over inventory, receivables or all of the business's assets, an unsecured supplier may be well down the line if things go wrong. How that ranking works depends on where you are, so ask your own adviser what it would mean for you. A banker may only say 'secured' or 'unsecured', and that alone is useful.
Would you describe the banking relationship as satisfactory?
Why ask it
This is the summary question a banker may answer even after declining the detailed ones. A plain 'yes, satisfactory' is the good reply. Note the banker's name, the date and the exact words, since this may be the only line you get.
How to check a credit reference and weigh what you hear
Practical guidance for the conversation itself
Before you call
Get the customer's permission in writing
Many credit applications carry a line, signed by the customer, authorizing the suppliers and bank named on it to release information to you. Have it ready to send, because many references will ask for it and banks very often do. If your form has no such line, add one before the next application goes out. What it has to say can depend on where you are, so have your own adviser look at the wording once.
Find the number yourself
Look up each reference's main line or accounts receivable department and call that, not the cell number written on the application. It takes two minutes and it is the simplest protection against a reference who turns out to be the applicant's friend. A reply from the company's own email domain does the same job.
Decide your figure first
Know the limit and terms you are considering before you pick up the phone. Every answer is then measured against a number: a high balance that is half of it, a reference on shorter terms, a bank balance smaller than one month of your sales. Without the number you collect facts and have nothing to compare them with.
Choose phone, email or a form
A short form by email suits a busy receivables department and leaves you a written record. A phone call gets tone, hesitation and the things nobody types. A workable routine is to send The basics in writing to every reference, then phone the one or two whose answers matter most or read oddly.
On the call
Keep it to five minutes
The person answering owes you nothing and has their own ledger to work. Say who you are, who the customer is and that you hold their authorization, then go through The basics in order. Save Problems and Closing the call for a reference who sounds willing to talk.
Ask for facts before opinions
Dates, amounts and days are easy to give and hard to shade. Some companies let their staff release only those, so starting there gets you something from everyone. Opinions, such as whether they would extend more, come last and only if freely offered.
What a bank will and will not say
Banks vary a great deal. Some reply only in writing, only with the customer's signed consent, only to another bank, or for a fee, and some do not reply at all. Those that do tend to speak in ranges and stock phrases and to decline anything about individual transactions. Ask the banker at the start how it works there. If the door is closed, ask your customer to obtain a reference letter from their bank directly.
Write down the words
Record the person's name, the date and the phrases they used, especially the hedged ones. 'Pays within terms' and 'they get there eventually' are different answers that both end up as a check mark on a form. The file you build is also what you will reread when the customer asks for a higher limit.
Weighing what you hear
Remember who chose the references
A customer lists the suppliers they pay best. That does not make the references worthless. It makes a lukewarm one significant, since this was the best the applicant could offer. Treat good references as a floor that had to be cleared, and treat any reluctance to name a major supplier as information.
Compare like with like
A reference is only evidence about amounts and terms similar to its own. A clean record on a small monthly balance paid by card says little about a large balance on 60 days. Where the gap is wide, start lower and let the customer build the same record with you.
Recent beats long
Ten good years and three slipping months should be read as three slipping months. Give most weight to the last sale date, the trend over the past year and anything the reference says has changed. A reference with no activity in a year is a history lesson.
Use more than references
References are one input. A business credit report, the customer's own financial statements if they will share them, public filings and the age of the company all fill in what a few hand-picked suppliers cannot. Where those disagree with the references, ask the customer to explain the difference.
Mistakes to avoid
Taking 'no problems' as an answer
It is the easiest reply to give and the least useful to receive. Follow it with one question that needs a number: how many days, how much past due, when the last sale was.
Reading a refusal as a warning
A banker or a large supplier who declines to answer is usually following a policy that applies to every inquiry. Note it as 'no information' and move on. Do not mark the customer down for it.
Counting a connected reference
A sister company, a relative's firm or a supplier the owner part-owns cannot give an independent view. Ask for a replacement instead of quietly discounting it.
Checking once and never again
References describe the day you called. Recheck when the customer asks for a higher limit, when their payments to you slow, or when ownership changes, and keep the dated notes so you can see what moved.
Trading plans instead of history
Keep the conversation to what has happened on the account. Telling another supplier the limit or terms you intend to offer, or agreeing between you how to treat a customer, goes beyond a reference, which is why none of the questions here asks you to share your own figure. Your own adviser can tell you where that line sits where you operate.