Due diligence is when a company or individual verifies its counterparties before entering into a deal with them. Due diligence must be exercised before signing a contract with a partner, supplier or customer. Check a new way of enterprise-ready due diligence software in the article below.
What Is Due Diligence and How to Exercise It?
Checking the reliability and business reputation of counterparties before concluding a transaction can eliminate financial and tax risks. If the company has shown due diligence when choosing counterparties and has the relevant evidence, this often helps to cancel the claims of the tax authorities in pre-trial and judicial procedures. What is due diligence, and what does it mean? How to show it in order to protect yourself from additional charges and fines? How to prove that the company has taken all possible measures to verify counterparties?
During due diligence, enterprise-ready software specialists must fulfill the following minimum:
- Study the history of the business.
- Explore his corporate system.
- Check all transactions.
- Review the reports.
- Study personnel policy.
- Check assets, including receivables and debts.
What Is Important in the New Way of Enterprise-Ready Due Diligence Software?
The enterprise-ready due diligence software advises carefully checking the counterparty if the following conditions are present:
- documents confirming the authority of the head or the person responsible for signing the contract are not submitted;
- there is no information and the actual address of the counterparty, its branch, or separate division or warehouse from which the goods will be shipped;
- the counterparty has participated in many legal proceedings as a defendant;
- there are doubts that the company or individual entrepreneur is not able to fulfill the terms of the contract; for example, there is no vehicle or poor financial condition, and the order amount is large.
In addition to checking the counterparty itself with the enterprise-ready due diligence software, you need to find out the powers of the person who acts to you on behalf of this organization. For this purpose, copies of documents on senior management and the appointment of the chief accountant should be requested from the counterparty. If the contract can be signed simply by an authorized representative, then you need to check his power of attorney for this. After – check the information with his passport data if he provides them.
Monopoly Motive with the Enterprise-Ready Due Diligence Software
Sometimes in due diligence software, the desire to achieve or strengthen one’s monopoly position plays a decisive role. The merger, in this case, enables companies to curb price competition: prices due to competition can be reduced to such an extent that each of the producers receives a minimum profit. However, antitrust laws restrict mergers with clear intent to raise prices. Sometimes competitors may be acquired and then shut down because it is more profitable to buy them out and eliminate price competition than to lower prices below average variable costs, forcing all producers to bear significant losses.
Obtaining economies of scale is characteristic of due diligence software. With the formation of conglomerates, it is sometimes possible to achieve it. In this case, economies of scale are achieved due to the elimination of duplication of functions of various employees, the centralization of a number of services, such as accounting, financial control, record keeping, staff training, and general strategic management of the company