is the second part of a two part series on confidentiality and
reporting. In this article we discuss confidentiality as it pertains
to information received by the organization and the internal use of
the information. For clarification at the end of the article there
will be a brief Q & A session conducted by Rich Hill. I want to
stress to the readers that the opinions expressed below are mine alone
and do not represent the opinion of Creditworthy.
Five years ago I wrote that confidentiality in
credit was a myth. What I should have written was that there is a
misunderstanding in the credit community with regard to
confidentiality and credit.
I have been a member of the National Association
of Credit Management for twenty-seven years. I taught credit classes
long before there was a CAP/ACAP program and taught the CAP/ACAP
program after its inception. Nowhere in Credits and Collections,
Credit Executives Handbook, Credit Manual of Commercial Law, Consumer
and Commercial Credit Management, Consumer and Business Credit
Management (all these publications have been used as texts) is the
subject of confidentiality and credit addressed as the sole
responsibility of the credit department. In fact, on page 150 of the
Credit Executives Handbook it reads that: a policy should be
established as to who may have access to the credit files. It goes on
to read: this policy must be adapted to the size of the organization,
the extent and nature of information contained in the files, and the
use to be made of it.
The NACM by-laws read that the NACM member
is the organization and the organization determines who from the
organization will represent the organization. It does not say whom or
from what department within the organization that representative must
come from. In the days when floor-plan financing was a popular method
of selling large quantities of inventory it was not unusual for the
large finance companies such as Borg-Warner, Westinghouse Credit and
ITT to be members of NACM and have their representatives attend
industry group meetings. Often these representatives were “account
managers” who not only handled credit but also sales for their
respective regions. There was never an issue of confidentiality among
industry group members because these organizations had policies on how
information, confidential or otherwise, was to be handled.
The information provided to NACM or any other
entity or received from NACM or any other entity by the member’s
representative is from or for the organization. It is the organization
that should decide, through its policies, what information from its
credit department will be shared and with whom, externally or
internally. For the many organizations that do not have a formal
credit function it is the organization that decides who in the
organization is responsible for its credit activities. Many
organizations assign that function to their sales departments.
Confidentiality should be determined and
defined by the organizations policies and procedures not those of an
association or third party organization. I will even go so far to
say that not every person employed in the credit department should
have access to all the information obtained in the credit department
because not everyone in the credit department has the need to know.
Designated management including the account
manager (sales person) has a right to know the reasons behind credit
decisions both favorable and unfavorable. We have an obligation to
share the information such as payment history, current ratios, debt to
equity ratios, judgments and lien information that determines our
decisions. To expect them to accept credit decisions without facts is
no different then they asking the credit department to accept “the
applicant is good for it” when wanting a credit line increase or an
order to be released on a past due customer.
The argument has been made that information
received by the credit department is confidential and even when the
request for disclosure is made the credit person should invoke that
the information was received in confidence. The fact is, in today’s
legal environment the only confidential information that is still
recognized is between individuals and their priest, rabbi or minister.
The Supreme Court ruling during the Clinton Administration has caused
the American Bar Association to re-address its rules on
If the credit department truly wants to bridge
the gap between credit and sales and have management recognize their
contribution to the organization they will begin by proposing a
policy to address the handling of confidential information and I
would hope that the policy would call for openly sharing this company
information with those that are making the ultimate decision so that
future decisions can be informed decisions where everyone takes
responsibility for the good and the bad.
I am not now nor have I ever promoted that
credit information should not be treated in a confidential manner. If
we inform an applicant or another vendor that the information, they
provide, will be treated in confidence, that statement should be based
on the confidentiality policy of our organization. It should be the
organization and not any one individual or department who determines
who in the organization may have access to any information,
confidential or not, that is the property of the company.
Question: Please comment on the
responsibilities of the people within the organization who do receive
bank and trade information on a customer.
Reply: It should be clear in the
policy that information received by the company from either customers
or other sources be treated in a confidential manner. It has been
stated on more then one occasion that if it is believed a particular
individual (such as a sales person) cannot be trusted with the
information then either 1) don't share or 2) provide the information
in such a manner that they cannot identify the source. For instance
showing them a D&B or NACM report. Both of these reports contain
payment information but do not reveal the identity of the firm
reporting the information.
Question: There are some Industry
Credit Groups who have confidentiality rules. Can you comment on
Reply: Confidentiality, whether
it be through industry groups or information received from the
customer, applies to the organization. It is the organization who
belongs to the industry group and it is the organization who the
customer provides information to. It is the function of the
organization to determine who in the organization will have access to
this information and provide, through its policies, for its
I wish you well.
information is provided as information only and not legal advice.
Legal advice should be obtained from a competent, licensed attorney,
in good standing with the state bar association.