Advice on E-Commerce: Know Your Partner.

• Author: Rucker, Daniel V.

Just like the settlers who ventured into the untamed West companies venturing into the e-commerce frontier need reliable procedures to determine the viability of business partners who are not just back East, but spread around the globe. As in the original Frontier days, there are still questionable entities around, and companies conducting transactions on the Internet need to be perpetually cautious.

This is primarily true because cyber-businesses tend to have markedly different financial profiles than traditional brick-and-mortar enterprises, and present a variety of new challenges for the financial executive looking to evaluate the creditworthiness of business partners. The seamless, global nature of the Internet and the lack of international controls and laws governing commerce on the Web exacerbate these risk issues.

Many of these challenges are centered around the way most e-businesses are formed and financed. With little up-front capital required, e-ventures can be established faster and with less physical presence than ordinary companies, making them more difficult to find, track, and link back to the real world. These start-ups can easily generate appearances to potential customers and suppliers about a business' size and scope that can be hard to validate. Therefore, in e-commerce, there are two overriding issues: first, determining the true identity of your potential partner, i.e.: is this company really who they say they are; and second, evaluating business credentials, i.e.: is the company strong enough financially to complete the requested transactions?

These issues are complicated by the international reach of the Internet and the legal differences governing it from country to country. Consider the recent problem with the "I Love You" virus, started in the Philippines by a graduate student who remains unprosecuted because of ambiguous Internet laws there. Determining the stability of a business partner is highly important when doing business across borders, where laws regarding Internet commerce may be nonexistent or unenforceable.

In evaluating a potential partner in cyber-commerce, remember that there has been such an infatuation with e-businesses that some investors and venture capitalists are pumping money into businesses based solely on a unique concept or interesting technology. All the cash flowing into these kinds of companies may be hiding problems with their underlying concepts. These companies may be using their...