(Intro by Rich Hill)
In the November 12th issue of Creditworthy News, David Balovich made mention
of credit and confidentiality with the following comment:
"There is an old credit myth that says credit information is
confidential and should be closely guarded. Well, I do not disagree entirely but we must
keep in mind whose information this belongs to. It does not belong to us or the credit
department, it belongs to our organization and they have every right to see what we are
looking at to make our decisions. Just as we expect sales to provide us all the necessary
information to evaluate the applicant, sales is entitled to all the information we used to
reach our conclusion."
This got the attention of Nancy Adams CCE, from Oregon Steel Mills. She wrote
back with the following comment of her own:
From my credit experience the 80/20 rule prevails, 20% of the normal
portfolio is "marginal". Confidentiality is NOT an "old credit myth"
and "Sales is NOT entitled to all the information we used to reach our
The Statement of Principles was written by RMA and NACM in 1955 and revised
in 1978. Its first principle is "Confidentiality is the cardinal rule in the exchange
of credit information. The identity of inquirers and sources should not be disclosed
without their permission".
Actual examples and consequences:
1. A potential customer refuses to share financial information. In a prior
disclosure financial information got into the hands of his competition. He will never
again disclose financial information.
2. A NSF check is received. Credit calls other suppliers and then shares the
information with his controller. The controller tells the customer who calls all of the
other suppliers to decry their actions. The other suppliers threaten to never share any
information with the credit manager.
3. The customer learns that his company was a subject of conversation at an
industry group meeting and threatens to sue for defamation.
4. Trade history on a customer is disclosed at an industry group meeting. The
sales person of a member firm shows up at this customer's facility the next day.
5. A supplier is sued for allegedly causing the demise of a customer's firm
by refusing to grant credit. The customer had heard that trade references were
instrumental in the decision. The court demanded the credit manager reveal his sources or
be charged with contempt of court. He declined. Confidentiality is the fundamental tool
that allows the free flow of credit information. Lack of professionalism in the credit
function will destroy access to information to make good decisions. Support from your
company comes if you have a good track record and use diplomacy. There are alternatives to
revealing sensitive and potentially damaging information about customers.
Thanks for your comments, Nancy. Does anyone else have any thoughts on the
subject? Next week, Dave Balovich will respond to Nancys comments.