The objective of due diligence is to gather all relevant information to make informed decisions that minimize risk and maximize returns. However, traditional due diligence can be a lengthy, costly, and complicated process.
That’s where simplified due diligence comes into play. Simplified due diligence is a streamlined version of traditional due diligence that focuses on identifying the most significant risks and opportunities while minimizing the time and resources required.
In this blog, we will explore simplified due diligence in detail, including its process, benefits, use case examples, and how it differs from other due diligence approaches.
What is Simplified Due Diligence?
Simplified due diligence is a streamlined approach to conducting background checks on individuals and entities. It involves a basic level of investigation which focuses on collecting information from publicly available sources. Simplified due diligence does not involve in-depth investigations or extensive data analysis, but relies on standard search tools and databases to gather information.
Benefits of Simplified Due Diligence
Simplified due diligence offers several benefits, including
- Cost-effectiveness: Simplified due diligence is a more affordable option than other due diligence approaches. It requires fewer resources, and the process is usually completed within a shorter period.
- Time-saving: As in-depth investigations and extensive data analysis are not involved, the process becomes faster as compared to other approaches.
- Simplicity: Simplified due diligence is a straightforward process that is easy to understand and implement. It does not involve complicated procedures or specialized tools.
- Risk mitigation: Even though simplified due diligence is a basic approach, it still helps organizations to identify potential risks and avoid making costly mistakes.
How Does Simplified Due Diligence Differ from Other Due Diligence Approaches?
Simplified due diligence is different from other due diligence approaches in several ways. Here are some of the differences:
- Scope: Simplified due diligence has a narrower scope than other due diligence approaches. It focuses on collecting information from publicly available sources, while other approaches may involve in-depth investigations and analysis.
- Purpose: Simplified due diligence is primarily used for low-risk transactions, while other due diligence approaches are used for high-risk transactions.
Examples of Simplified Due Diligence
Simplified due diligence can be applied to various business scenarios. Here are some use-case examples of simplified due diligence:
Onboarding New Customers
Financial institutions may use simplified due diligence to onboard new customers for lower-risk products, such as basic savings accounts. This helps ensure compliance while reducing the cost and time associated with conducting more in-depth due diligence.
Vendor Due Diligence
Companies may use simplified due diligence to assess the risk associated with potential vendors. This could include verifying basic details such as business registration and reputation.
Business Partnership
Before entering into a business partnership, businesses need to evaluate the partner’s financial stability, reputation, and legal standing. Simplified due diligence can help them evaluate potential partners quickly and cost-effectively.
Compliance Audit
Businesses need to comply with various laws and regulations, including anti-money laundering (AML) and know-your-customer (KYC) regulations. Simplified due diligence can help them conduct compliance audits quickly and efficiently.
Employment Background Checks
Many employers conduct simplified due diligence as part of their employment background checks. This could include verifying a candidate’s employment history, educational qualifications, and criminal record.
Reconciling Supplier Invoices
Companies that have long-standing relationships with suppliers can use simplified due diligence to reconcile supplier invoices. By verifying basic information about the supplier, such as their name and address, companies can ensure that they are paying the right entity.
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