Rating in the Purchase Process

The assessment of the creditworthiness is subjective. It is the personal answer to the question of whether a trade will successfully be settled until the end. The end is the exchange of goods against payment. As we see from this definition both parties, the buyer and the seller contribute with their own views to success. Possible concessions or risk acquisitions itself depend very much on whether the partners trust each other. Confidence is building up and strengthened in the course of a business relationship. The Internet connects unknown partners, this is a constitutive feature of the medium. From this the following options for a business relationship are derived:

1st Mutually trusting partners, such as businesses, resulting from years of business relationship or authorities, which have a joint supervisory body to exchange information on credit.
2nd A trusted partner and an unknown, for example, a well-known trading company and an unknown buyer, or the other way around: a corporate buyer and a small, unknown manufacturer.
3rd Two unknown partners, for example, a small trading company and a new customer or two individuals who meet at an Internet auction.

The first option makes only little demands on the organization of the buying process. The seller usually at first provides the good or service and thus granted a supplier credit to payment. The payment is mostly executed through bank transfer.

The second option works in the bilateral relationship with the unkown partner allowing a credit. The unknown buyer pays in advance and grants a buyer credit in order to benefit the seller. Inversely the unknown seller grants a supplier credit to the authority or another company with flawless credit rating. He renders services or delivers his goods, writes the bill and expects the payment then, in most cases also by bank transfer or check.
Risk Aversion
The third option is typical for the Internet trading, where unknown participants process purchase transactions. They have no common history and therefore an undefined relationship of trust. This situation requires a substantial organization of the performance and payments. The following is the basis of this constellation. An unknown seller with a Web Shop offers his goods. A new customer is asking for this service. Both partners have an opposing risk assessment they distrust each other more or less. The preferred time of payment reflects the acceptance in a simplified curve.

For both partners the acceptance of trade rises with falling risk, which is not surprising. However, if no third party intermediary or settlement center comes into the game, the expectations and assessments for unknown partners stay complementary. Each of them wants to pass the risk regarding the fulfillment of the business to the other. The idea is to move the payment date or the date delivery as far as possible backwards, i.e. only pay after the delivery (buyer), or deliver after the payment (seller).
Mutual mistrust stems from an uncertainty that the public is even stoking through the debate on the secure payment system. This discussion is one-sided, because it stresses fraud on the payment side, but does not benefit the safe delivery (fulfillment by the seller). The discussion is only valid for the special case of the asymmetric constellation with a well-known seller and an unknown buyer. The delivery is probably backed up and then its essential to place the payment on a firm footing.

The asymmetric variant 2 (see above) is also encountered on the Internet, but not dominant for trading through and with the new medium. On the Web thousands of relatively unknown seller meet with millions of potential customers. Two unknown partners with balanced risk expectancy (Option 3). The buyer needs a certainty of delivery, the seller the same regarding payment. This reduces the task generally on risk management for unknown partners. In the dynamic viewing one collects information adding the "notoriety". The resulting trust puts reliability to the transaction and eases the E-Commerce.

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