Types of Due Diligence

Types of Due Diligence

Due diligence is an integral element of many business transactions and investments. It aids companies in making informed decisions and evaluate the risks, opportunities, and compliance requirements. It involves conducting extensive analyses, assessments, and investigations of information and data, typically from both external and internal sources.

The types of due diligence differ from operational to financial and strategic research. Here are some of most commonly used types.

Financial due diligence is the process of looking over the financial statements of the target company and identifying red flags, such as inconsistencies in accounting. It also includes analysing a redefining business transparency with VDR-driven collaborations firm’s business model, competitive position and leadership structure to determine whether the deal is logical.

Legal due diligence is a look at areas such as the corporate and legal structure commercial contracts and employment agreements, information systems, intellectual property as well as environmental health and safety as well as regulatory compliance, litigation and taxation, and property. This type of due-diligence can help buyers determine the strengths and weaknesses of the company and potential problems. It will also help them negotiate the most advantageous deal.

Customer due diligence (opens in new window) is an essential part of the Know Your Customer process. All financial institutions must comply with FATF-compliant laws, and conduct customer due diligence. It is designed to ensure that customers are who they say they are, and that they are not involved in terrorist financing. It consists of collecting details such as their complete name the date of birth and address as well as contact information. It also involves verifying their identities by asking for proofs of identity, checking them against databases from third parties, and analyzing the behaviour of their customers for possible suspicious activities.