This is the multi-page printable view of this section. Click here to print.

Return to the regular view of this page.

Business Relationships

Business transactions are always carried out in a context of the involved parties, the locations and jurisdictions, and the date and time of transaction consummation. By describing in detail the Business Relationships of the parties and places involved in a transaction, we can establish terms, rules, and requirements to which business transactions must adhere.

1 - Entity

Entities are the legal entities such as a business’s customers, vendors, employees, partners, etc. and who are the parties to transactions.


An Entity can be any organization, company, government, or individual which can legally enter into a contract and with whom business is transacted.

Ideally, each relevant real world entity only has a single representation as an Entity. Any nuance or multiplicity of roles should be expressible via the Entity’s Relationships.

Individual Person as Entity

An individual, real world person may also be described as an Entity. When this is the case the individual will most often also be a Person with a Relationship to the Entity indicating that the individual acts as their own agent. Other People may be granted Relationships to the Entity so that these others may act as agent on the Entity’s behalf (lawyers, assistants, family, etc.); it is even possible that the individual represented by the Entity does not act as their own agent and therefore isn’t recognized as a Person with a relationship to the Entity, though this would be rare.

Notes on Perspective

Throughout the Business Relationships section we’ll be referring to different Entities from the perspective of one working within a specific company or organization. A “first party Entity” or “primary Entity” therefore would be our company or organization and an “external Entity”, “second party Entity”, or “third party Entity” would be some other Entity from our assumed perspective. When we speak in terms of business systems, the first party Entity will be the one whose staff would be using the system.

2 - Person

A Person is someone who acts as an agent on behalf of an Entity. This may be a real individual person in the world or indicate a function, such as “Customer Support”, where the actual person contacted may vary and identifying a specific individual is unimportant.


While it might seem obvious what a “Person” is, we’re going to augment that assumable definition a bit here. A Person, for our purposes, is someone who acts as an agent on behalf of an entity; the designated contact for any communications regarding some aspect of business that the Entity may engage in.

Person as Functional Designation

A Person will often times be a named individual in the real world, but there will be times where a Person represents a role that might be fulfilled by any of a group of people; for example, an “Accounts Payable” Person representing a vendor might mean that any one of the vendor’s Accounts Payable staff may act as the accounts payable agent during a discussion of invoicing or payment. In such a case the specific individual doesn’t matter, but still has all the previously discussed traits of a “Person”.


“Contact”, as we use the term here, refers specifically to how a Person is contacted. This can include designating email addresses, telephone numbers, messaging application IDs, and physical addresses such as mailing addresses as being means by with to contact a Person.

Any one Person may have a variety of different applicable Contact methods, though typically there will be preferred or default methods of contact.

3 - Place

Places are the retail stores, warehouses, factories, and offices in which the business conducts its operations.


While it might seem sufficient, from the business systems perspective, to simply identify an address, the idea of Place in business applications go well beyond describing its location. Places designate where business personal property is located (e.g. product inventories & fixed assets), they are associated with coarse grained capacities for work, they establish the dates/times of transactions, and they allow controls for transaction processing and controls for the people working from such Places.

Importantly the designation of a Place of business is also a statement of the legal jurisdictions under which business is conducted, commonly establishing the legal, regulatory, and taxation requirements of that business at that location.

4 - Relationships

Entities, People, and Places will have “Relationships” between them. It is these Relationships which provide us the richest information and carry the most interesting meaning within the subject area of Business Relationship Management. The lists of Entities, People, and Places may identify with whom we’re dealing and where, but Relationships tell us why we care and what we should expect for any business transaction.


For our purposes, a Relationship describes how any two Entities/People/Places interact with each other during the conduct of business or for which recognition of the Relationship can aid in performing analysis of business data. In addition to the actors involved in a Relationship, we also limit the scope of any single Relationship to some specific area of business concern or purpose.

A well defined Relationship describes the terms, conditions, and understandings of the two parties involved in the Relationship when transacting business in the subject area of the Relationship.

Refined Definition

More specifically, a Relationship as defined in our model is the uni-directional Relationship of a Subject to an Object. A Subject is the first party Entity, Place, or Person. The Object is the second party Entity, Place, or Person. The Relationship between the Subject and Object indicates a Relationship of a specific business nature or “kind”. We can therefore say: the Subject has a Relationship of a certain kind with the Object.

Basic Relationships

Consider an example Relationship where “Our Co.” sells products to “Their Co.”. In this case “Our Co.” would be the Subject (seller) , the Relationship in question would be a Sales Relationship, and the Object (customer) in the Relationship would be “Their Co.”.

Sales Relationship Example

We can see that both Subject and Object have well defined and distinct roles relative to the Relationship. It should also be obvious that even though “Our Co.” sells products to “Their Co.”, it doesn’t necessarily mean the reverse is true and thus the Relationship is uni-directional; if “Their Co.” also sold products to “Our Co.”, we would have to acknowledge that as a different Relationship that was parallel to the Sales Relationship described above.

Subordinate Relationships

Defined Relationships between Entities/People/Places can also act as either the Subject or Object of a secondary or “Subordinate Relationship” in some cases.

To illustrate this let’s consider a different hypothetical scenario where “Our Co.” buys products from “Their Co.” This would constitute a Purchasing Relationship where the Relationship Subject (buyer) is “Our Co.” and “Their Co.” is the Relationship Object (vendor).

Purchasing Relationship Example

For a variety of reasons, some businesses sell their accounts receivable to a kind of third party company known as a “factoring company”. The factoring company will buy the accounts receivable of the vendor at a discount, generally speaking, and then the factoring company receives the full payment from the customer and accepts the risk of non-payment by the customer.

Let’s extend our Purchasing Relationship scenario such that “Their Co.” sells their accounts receivable to “Collect Co.”, a factoring company. In this case, while “Our Co.” will purchase products from “Their Co.” under the terms established by the Purchasing Relationship, when “Our Co.” pays the invoice for the product, they’ll pay it to “Collect Co.”

This is where the Subordinate Relationship exists. The Purchasing Relationship itself now extends to a third party for a narrow, but important aspect of purchasing. We can allow for this in our model by defining a “Payables Relationship” between the Purchasing Relationship (Relationship Subject) and the Entity “Collect Co.” (Object Relationship).

Payables Subordinate Relationship Example

We wouldn’t directly establish a Relationship between “Our Co.” and “Collect Co.” because the Relationship is unique to the Purchasing Relationship between “Our Co.” and “Their Co.” and isn’t generalizable beyond that Purchasing Relationship, even if other “Our Co.” vendors use the same factoring company.


So far we’ve discussed rich Relationships in which the description of the Relationship itself requires us to specify the nature of the Relationship’s terms, conditions, and understandings in addition to recognizing that the Relationship exists. But not all Relationships need to be thought of in such detail. Some Relationships are simple enough that we can just recognize that the Relationship exists without greater embellishment. In our mental model we’ll use the term Roles to refer to Relationships which are of this simple variety.

Most frequently Roles will relate Subjects made of Entities, Places, or rich Relationships to People acting as Relationship Objects. These Roles can be simple because their full meaning will require contextual inferences from the Subject of the Role. For Example, a Purchasing Relationship may require us to know who our account manager is with our vendor.

Purchasing Account Manager Example


Because we limit the scope of our Relationship and Role definitions to a single purpose, we should expect that between any two Subject/Object actors, that multiple Relationships may exist between them at the same time. Less common, but still feasible for some kinds of Relationships is the possibility for more than one Relationship of the same kind to exist.

  • A Subject Entity may simultaneously have a Sales Relationship with an Object Entity in some transactions while having a Purchasing Relationship with the same Object Entity in other transactions.

  • An Object Entity representing a large company or organization may have divisional or departmental purchasing organizations which act fully independently. Each of these divisional purchasing organizations may also have their own, independent Sales Relationship with the Subject Entity as the terms, conditions, and people involved in transactions may vary across the Object Entity’s divisions.

5 - Entity/Entity Relationships

Business Relationships of various kinds can be formed between two Entities. These Relationships define how the Entities interact in different contexts.

Entity to Entity Relationships, individually, are directional meaning that the “first party Entity” has a specific, but different role in the Relationship as compared to the role of the “external Entity”. These roles are not reversible and therefore we say the Relationship is directional.

Relationship Kinds

There are many ways to divide Relationships into categories of like kinds, but for our purposes we’ll define the top level of Entity/Entity Relationship kinds as follows:


A Relationship where the first party Entity is the seller and the external Entity is the customer in sales related transactions.

  • Subordinate Relationships

    • Accounts Receivable
  • Person Roles

    • Fulfillment Recipient

    • Accounts Receivable

    • Customer Agent


A Relationship where the first party Entity is the buyer and the external Entity is the vendor in purchasing transactions.

  • Subordinate Relationships

    • Accounts Payable
  • Person Roles

    • Accounts Payable

    • Account Manager/Sales Representative

    • Shipping


A directional Relationship where the first party Entity is the employer and the external Entity is the employee/contractor/etc. In this case the external Entity is also an individual person.

  • Person Roles

    • Emergency Contact


A directional Relationship where the first party Entity is the consumer of banking services and the external Entity is a bank, lending institution, brokerage, etc. Banking Relationships are usually used to facilitate the creation of banking related ledger accounts rather than to facilitate the processing of specific transactions.

  • Person Roles

    • Account Manager

    • Payments

    • Receipts

    • Support


A directional Relationship where the first party Entity is a parent company and the “external Entity” is a subsidiary company such that the subsidiary financials are consolidated into the financial reporting of the parent Entity.

Tax Authority

A Relationship where the first party Entity is the tax payer and the external Entity is the government agency to whom taxes are paid.

  • Person Roles

    • Remittances

    • Support

6 - Entity/Place Relationships

Places can have varied Relationships with Entities. Enity/Place Relationships describe the roles, privileges, and responsibilities which an Entity has in regard to a specific place.

Entity to Place Relationships may be recognized between any Entity and any Place. In fact, any one Place may have Relationships with more than a single Entity. Consider the example of “third party logistics”, where the first party Entity may locate their inventory in an external Entity’s warehouse; in this case the warehouse is under management of the external Entity, but the first party Entity owns, manages, ships/receives, and accounts for inventory at that warehouse. Under our model the warehouse is a single Place and the Relationships with different Entities inform our understanding of the complete picture.

Relationship Kinds

Different kinds of Entity to Place Relationships inform us about which Entities have legal responsibilities in regard to the place, the people we will find at the Place and why they are there, and the tangible personal property that is stored at the place.

More formally we define this as:


This Relationship indicates that the Entity in the Relationship has a management responsibility for the Place. This Relationship may be indicative of the Entity being in an ownership role, as the legal occupant, or merely having a facilities management responsibility for the Place.


The Entity in the Relationship will employ staff at this Place. This kind of Relationship allows the Entity to manage staffing levels, rules, and legal requirements related to employing staff at the Place.


The Entity in the Relationship will own units of inventory items at the Place. This kind of Relationship implies a Place related boundary which may delineate financial inventory control, inventory availability for use in manufacturing or directly consumed, or inventory available for fulfillment needs.

It is plausible for Entities to have more than a single Inventory Relationship to any single Place. For example, the Entity may differentiate between units of items that have not been inspected vs. those that have or the Entity may wish to segregate inventories available for distribution, those available for consumer sales, or even rental inventories.

7 - Person Roles

A Person can have various Relationships with Entities, Places, and even other Relationships.

Person Relationships are different from the Relationships discussed thus far in that they tend to exist as Simple Relationships or “Roles” where acknowledging that the Relationship exists is sufficient for understanding it.

There are many different kinds of Person Relationships possible and many of the possible Relationships are ad hoc and specific to a given company’s business practices. Given the multiplicity of Roles that can exist, we’ll not try to list the various typical Person Roles, but rather provide some examples to firm the conceptual understanding of Person Roles.

  • For Places, Person Roles might include “Facility Manager”, “Maintenance Manager”, or “Shipping Manager”.

  • For Entities, Person Roles may include “CEO”, “Reception”.

  • For Sales Relationships, Person Roles may include “Purchasing Manager”, “Buyer”, “Support”

Clearly most of these Roles are simply clarifying which Person to contact in specific scenarios which is why these Relationships can be expressed as simple Roles. The Entity/Entity Relationships and the Entity/Place Relationships provide the rich context required for understanding the defined Person Roles.