Third-party providers form an intricate but crucial network that supports small-medium business (SMB) functions. They deliver quality shipping, supplies, equipment maintenance, cloud-based software services, bookkeeping, etc., at cheaper rates than achievable in-house. But since not all vendors, suppliers, or partners are right for your business, it is always critical to perform due diligence to identify the right ones for you. Performing this allows you to make data-driven decisions about who you do business with and in what capacity. It is also an important function to help you understand your business’s potential liability under anti-corruption laws and other legislation.
How to Do Third-party Due Diligence
Due diligence allows you to undertake various transactions from an informed standpoint. It identifies opportunities and red flags within the partnership that you didn’t know existed. Here’s how to conduct third-party due diligence:
- Collect relevant data and documentation on the reputation, structure, and operations of the potential vendor.
- Submit questionnaires to the business unit that’s looking to take on a new supplier/contractor.
- Have an independent legal/compliance department analyze and verify the data collected.
Other than third-party vendors and supplies, this also allows you to analyze your company’s liabilities. Here are some areas that you can run for your small business:
- Financial: Gives you insights into your company’s financial performance to the current date. It ensures that the numbers presented in the financial statements are sustainable and accurate.
- Legal: Focuses on the legal aspects of your business and its relationship with stakeholders. It analyzes areas like licenses, contracts, regulatory issues, and any legal liabilities that may be pending.
- Operational: Focuses on your company’s operations – essentially checking how it converts inputs into outputs. This is often seen as the most forward-looking type of due diligence.
- Tax: Involves analyzing all your business’s tax affairs and making sure that all tax liabilities are paid in full to date. It also looks at how a merger would impact the tax liabilities of the new entity formed by the transaction.
The problem is that conducting due diligence is not always as straightforward as you’d like it to be, especially for small businesses. There are endless regulations guarding the process, massive amounts of siloed and hard-to-reach data, and complex processes to deal with. Not to mention the common issues like lack of expertise, slowness of execution, not knowing what questions to ask, and cost challenges. All these can be overwhelming, to say the least.
Due Diligence Software
Luckily, you don’t have to base your due diligence on a mix of Word Documents, PDFs, emails, or Excel spreadsheets. You can take advantage of software that’s designed to streamline the entire process. The best ones, like Enformion, facilitate the sharing of checklists, questionnaires, etc. They let you track and control everything in one place. With third-party management software, you can:
- Gain visibility and valuable intelligence into third-party relationships for risk awareness and informed business decisions.
- Centralize third-party information inventory for improved third-party onboarding, screening, compliance, audits, risk, and issue management process.
- Automate risk-based segmentation and deploy rules for ongoing due diligence to focus efforts on critical third-party.
- Streamline your processes to make sure that third-party costs are optimized, and redundancies are minimized.
- Improve compliance with different third-party management regulations like FCPA, HIPAA, OCC, Dodd-Frank Act, and the UK Bribery Act.
Performing due diligence on a dispersed, multi-layer partner/vendor network is a daunting task, yet a critical one. But with the help of this software, you can screen, assess risk, monitor and take actions against fraudster vendors to protect your business. Contact us today to learn more about our due diligence software.