Building B2B Trust

Computerworld - The need to trust business partners is nothing new. For many years, financial services and credit-rating firms have provided services to check credit, hold monies in escrow or determine the long-term financial viability of businesses.

But establishing trust is different when buying and selling is conducted over the Internet. How do you know you're dealing with a legitimate business that will pay its bills, especially given that online transactions are performed with little human intervention? And how do you know that an electronic transaction is secure and that the trading partners at the other end are who they say they are?

Concerns about trust have kept many companies from taking part in or expanding their online business-to- business trade. In a survey of 60 procurement agents at U.S. companies conducted by New York-based Jupiter Media Metrix Inc. last year, 45% of the agents said a lack of trust prevented them from buying goods and trading online more frequently.

"In the online world, establishing trust with your trading partner is important; it's an issue that can't be ignored by either buyers or sellers," says Carol Rozwell, an analyst at Gartner Inc. in Stamford, Conn.

"In many cases, companies expect more stringent requirements from online partners than from off-line partners. We saw that even in the early days of [electronic data interchange]," Rozwell says. "There are concerns for both trading parties about confidentiality and making sure there's a nondisputable and auditable trail of transactions."

Business-to-business buyers worry that they won't get quality products delivered from a licensed vendor in the right quantity, at the right time and at the right price. For sellers, the worries include getting paid on time—or at all—and extending credit to unworthy buyers.

Technology and business managers are attacking the trust problem in a number of ways, using tools such as automated credit-checking applications and online trust services to determine the credibility of trading partners. They're also using the latest security technology to ensure that transactions are safe.

Transportation and supply chain management company Ryder System Inc. is using Instant Decision software from eCredit.com Inc. in Dedham, Mass., to automate the process of checking a company's credit. John Aleman, senior director of application strategy and development at Miami-based Ryder, says the company uses the product to evaluate the credit and payment history of customers for its vehicle-leasing and logistics services.

Using data gathered by the credit-analysis software, Ryder assigns a credit score, ranging from one for very low risk to five for high risk. Instant Decision incorporates existing customers' actual Ryder payment histories.

Ryder bases pricing of its services on the credit score, so a high-risk customer would pay more for a particular service than a low-risk company, Aleman says.

"The high-risk customers may go elsewhere if the price is not seen as competitive, but that's to our advantage," she says. "We are encouraging poor-credit customers to share the [risk] burden with us."

Aleman says Ryder, which has some 14,000 customers worldwide, expects increased annual revenue of $6 million to $10 million because of the credit-scoring application. How? By getting more revenue from the higher-priced services for high-risk customers, and by freeing salespeople from pursuing prospects that won't be able to pay.

The company has safeguards to ensure that it's dealing with ethical, reliable suppliers. Only those suppliers that Ryder has used and trusted for some time are placed on its RyderFleetProducts.com Web site, which is used internally for procuring parts for trucks. Ryder ships all of the products itself to ensure that the right products are delivered on time and in the right quantity. And the company has established metrics to measure the performance of its suppliers in terms of product quality and timeliness.

To keep its online business-to-business transactions secure, Ryder uses digital certificates and authentication software to verify customer identities, as well as public-key infrastructure and encryption to protect the integrity of the transactions.

Air Products and Chemicals Inc., like many chemicals companies, does most of its buying and selling from customers and suppliers it's been dealing with for years or even decades.

Before sending any new customers a product, however, Allentown, Pa.-based Air Products sets up a customer profile, which triggers checks of the customer's financial qualifications, says Stefanie Wexler, e-business venture manager. These profiles are created using a combination of legacy systems, but the company plans to move this process to a customer relationship management tool in the future, a spokesman says.

For electronic trading with customers, Air Products uses either its own APDirect trading portal or online trading hubs such as Wayne, Pa.-based Elemica Inc. With APDirect, only registered customers have access to transactional applications and information.

Other firms are using Web-based tools to validate their trading partners. Freightquote.com, a Lenexa, Kan.-based provider of online freight management services, is using D&B Global DecisionMaker from The Dun & Bradstreet Corp. in Murray Hill, N.J. Corporate users access the Global DecisionMaker Web site for real-time recommendations on whether to grant credit.

When a new customer enrolls on the company's site to place an order, Freightquote.com connects via the Web to the Global DecisionMaker site and gathers information before setting a credit limit, which is based on the customer's financial profile and payment history for shipping services. If the company is a poor risk, it must pay in advance by credit card.

Saving Time and Peace of Mind

Freightquote runs checks on about 30 business-to-business customers per day, says Yolanda Howard, financial project manager at Freightquote.com.

"Before we used this system, we basically had an arbitrary way of defining credit limits," Howard says. "Now we're learning more about our customers and extending credit to those that are worthy and eliminating those that are poor risks. The main goal is to eliminate bad debt." Previously, the company had a time-consuming collections process for poor-credit customers, she says.

Phillips Petroleum Co. in Bartlesville, Okla., in another company that's handling the trust issue by trading exclusively with partners it has had for years. "Because of that, there's already a built-in trust," says Del Clark, manager of IT exploitation at Phillips.

"We already have an ongoing relationship with the customers and suppliers we do business with on the Internet, so trust is not really an issue," says Kirk Drummond, CIO at Sysco Corp., a Houston-based distributor of food products.

"Our sales and marketing people qualify all new customers by doing the necessary credit reviews," Drummond says. "After they've been approved, we make our order-entry systems available on the Internet. We do the same with suppliers."

Whether they check out trading partners the old-fashioned way or by using new online tools, many managers agree: There's too much at stake to take business-to-business trust for granted.

Violino is a freelance writer in Massapequa Park, N.Y.

Trading With Trust Do the necessary background checks to ensure that prospective customers are legitimate businesses and that they are a good credit risk. Combine external credit-rating services with your customers’ histories of payments for products and services. Encrypt all data in an online transaction, and make sure all trading partners use adequate encryption technology. Use authentication and digital signature technology to verify the identity of trading partners. Consider using a reliable, secure industry exchange for procuring goods and services. Create a Web trading portal that allows only registered customers access to trading applications and information.