Effective due diligence is an important procedure that assists businesses in making better decisions and reduces risk. However, it can be a time-consuming and complicated task, especially in transactions that are complex. And a bad experience can cause significant financial losses as JPMorgan Chase’s $175-million purchase of the startup student loan company Frank demonstrated.
Whether assessing a new client or negotiating with a third-party service provider, effective due diligence requires a comprehensive amount of data gathering that goes beyond standard compliance checks. It starts with an extensive risk assessment which includes factors such as geographic location and industry sector. It also includes thorough background checks, as well as investigating ownership structures and legal histories. It also involves evaluating a potential third party’s compliance with regulations and anti-money laundering practices.
The more a company concentrates on tasks that require a lot of judgment in its due diligence program and the more it will be able to develop that skill. However, it is equally important to automatize the routine data collection, to free up time to concentrate on these tasks that require judgment.
Due diligence tools can help streamline this process and help companies save time and money, while ensuring that all checks are done. The best tools allow for seamless sharing, tracking, and collaboration between teams and stakeholders. They also offer features such as security settings, version control and audit trails. They also provide an encrypted repository to manage, store and access due diligence documents. This enables an improved and more efficient workflow even across multiple jurisdictions.
