Are Your Commercial Credit Files Secure?
The Ten Measures You Should Take to Limit Access to Customer Credit Information
In order to manage the risk of extending trade credit, vendors need to collect information on their business customers. What they do with that information after making a credit decision is not a trivial matter. When those records were paper-based, the primary concern was access control. Now that digitalized records are the norm, customer privacy can be more easily breached by both internal and external bad actors. The cyber-security of credit files cannot be taken lightly.
When selling to public companies, much of the information collected to make a credit decision is already in the public domain. Even so, banking details, supplier references, transaction records, and other non-public insights that may be collected should not be shared beyond the credit function. You need to be wary of exposing any information that could be used for insider trading as defined by the SEC.
Selling to private companies, however, raises an entirely new specter of privacy concerns. The information a private firm provides to get credit is privileged, not public. Any financial statements, bank account information, credit card details, and owner information that is shared to obtain credit needs to be secured and only used for that purpose.
There are essentially three types of information that are collected from and on business customers. They are:
Onboarding Documents: These include a credit application, signed credit agreement, bank and trade references, credit bureau reports and/or scores, as well as sales tax exemption certificates, financial statements, and a guaranty if required.
Operating Details: These include the customer’s credit limit, risk rating, collection call logs, billing records, payment information, internal scorecards, and correspondence.
Financial Instruments: These include UCC security agreements, letters of credit, promissory notes, and other financing agreements.
All this information becomes part of the customer credit file. While this information is necessary for managing and monitoring each customer’s credit, it is still private information that should be secured within the credit function. This is why a non-disclosure clause should be included on your credit application form—it shows you are serious about protecting your customers’ privacy.
Benefits from a Secure Environment for Commercial Credit Information
Access to customer credit information should be on a need-to-know basis. Physical credit files should not leave the credit function nor be left lying out on a desk where anybody can see them. The same principles apply to digital files. Here are five critical reasons customer credit information needs to be secured:
Protection against data breaches: Secure storage safeguards sensitive financial data from cyber-attacks and unauthorized access, preventing potential identity theft and fraudulent activities
Maintaining customer trust: Supplier risk management is a growing concern, so that now roughly 70 percent of customers will only do business with trustworthy brands, making data security essential for maintaining relationships and attracting new clients
Regulatory compliance: Adhering to data protection laws and industry standards like the Gramm-Leach-Bliley Act (GLBA), Fair Credit Reporting Act (FCRA), and the Payment Card Industry Data Security Standard (PCI DSS) helps avoid steep fines, penalties, and loss of customer goodwill
Reputation preservation: Data breaches can severely damage a company's reputation, leading to lost business and long-term negative impacts
Financial protection: Secure data storage helps prevent financial losses from fraud, lawsuits, and the costs associated with resolving data breaches
As you can see, the benefits of maintaining a secure environment for the handling and storage of customer credit information derive from the consequences being severe:
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