Why Due Diligence Is Important In Business?
In mid-2017, the world was shocked by the leak of financial documents known as the Paradise Papers. These papers disclosed the secret investments of wealthy individuals globally, including those in Indonesia, who used Offshore Financial Centers (OFCs) in tax havens. OFCs often bear a negative reputation as money launderers. However, not all OFCs are used for this purpose; some enforce strict supervision by performing proper due diligence on their customers.
What is due diligence?
In business, due diligence is a thorough investigation conducted before a company makes a decision, such as investments, sales, or purchases. Its purpose is to measure business risk.
In the case of OFCs, they perform due diligence to assess the risk of money laundering. OFCs that enforce strict supervision do not favor high-risk customers.
A company certainly does not want a supplier it collaborates with to have legal issues, nor does it want a newly acquired company to have undisclosed tax arrears. To avoid such situations, the company must conduct due diligence on prospective suppliers before any transactions occur to mitigate potential reputational and financial losses.
The thorough investigation
Basically, due diligence process in business is applied in two main situations:
1. Transactions involving the sale and purchase of products or services.
In this context, it aims to gather details about the parties involved in the sale or purchase to prevent fraud that may harm both parties. Companies can conduct it by reviewing all relevant documents, including inventory lists, customer lists, lease contracts, financial claims, and other necessary documents.
2. Transactions involving acquisitions, mergers and cooperation with other parties.
In mergers or acquisitions, it involves a more comprehensive investigation of the company’s past operations and future prospects. This helps determine the company’s operational history and its potential moving forward.
Know Your Vendor™
Integrity Indonesia, with over fifteen years of experience in the compliance industry, offers a comprehensive due diligence service through Know Your Vendor™.
Know Your Vendor™ solution helps clients mitigate supply chain risks by providing a consolidated panorama for due diligence on third parties.
Using the latest technologies to monitor clients’ supply chains, Know Your Vendor™ allows clients to import their vendors and assigns each a questionnaire, a critical step in the process. Clients can follow the progression of the due diligence in real time and access the report and score at the click of a button.
For more detailed information on how Know Your Vendor™ and other compliance services can help your company, contact us today.