The goal of the cover letter is to set your job application apart by convincing the employer that you have what it takes to get the job done. In general, it's not necessary to include professional references in the letter. Exceptions exist, of course, and you can include references if it will give you an edge on the job search.
In some cases, an employer will request that you include professional references in your cover letter. In that case, the special instructions override conventional wisdom, and you should follow them to the letter. The way you format your references is up to you. The easiest option is to list them at the bottom of the letter. Include each person's name, title, relationship to you and contact information. If the employer does not request this information, there is no need to include it in the letter.
Another situation that merits the inclusion of one or more references in your cover letter is a professional connection. If your reference knows the hiring manager or employer personally, it can be beneficial to include the connection in your letter. Instead of listing it at the bottom, write it into the first paragraph of the letter. Before you do so, however, do your due diligence. Research the relationship to ensure that it is positive and beneficial by calling the reference. In doing so, you can avoid harming your chances by including a name that will bring up bad memories for the potential employer. In addition, make sure that a reference to the person will increase your standing as a candidate; if the name is unrecognizable or infamous, it can damage your standing.
If you have more than one reference with a personal connection to the employer, it can be difficult to work them all into your first paragraph. In this case, place your list of references in the middle of the cover letter. Format them as a bulleted list to set them apart. When the employer sees two or three familiar names, it can help your application stand out from the crowd.
Any time you choose to include references in your cover letter, it is polite to call them first to let them know. That way, you can tell each person about the open job and warn them that they'll be getting a call. For busy professionals, this forewarning can work in your favor; it gives the references time to reflect on your relationship and come up with positive things to say. It also demonstrates that you respect their time.
References can be a benefit to your cover letter, but only when used appropriately. When it doubt, it is generally not harmful to leave them out of the letter and supply them when requested.
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