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In the ever-evolving E-commerce age, making investment decisions is paramount to success. This concept of due Diligence comes into light when someone wants to purchase an online business, partner with an e-commerce vendor or invest in a new venture. In this detailed blog, we will understand the meaning of due Diligence in commerce, explore its various types and processes, and highlight its significance, especially in the context of e-commerce.
Due Diligence can be defined as a systematic and comprehensive investigation or examination carried out before making any critical business decision. Careful assessment of diverse aspects of a business is needed in commerce to ensure that all the required information is presented. This process helps provide a solid foundation for making better decisions and mitigating risks.
There are three types of due Diligence:
The due diligence process ideally involves the following steps:
In e-commerce, KYC (Know Your Customer) procedures are closely related to Due Diligence when dealing with online transactions and payments. KYC (Know Your Customer) refers to a regulatory requirement that involves verifying customers’ identities to prevent illicit activities such as fraud, money laundering, etc.
KYC (Know Your Customer) is mainly employed to ensure the legitimacy of a business’s customers. There are various methods to ensure that, such as verifying customers’ identities through documents like driver’s licenses or passports, monitoring transactions for suspicious activities, and conducting a risk assessment.
There are various forms of due diligence, depending on the specific context, such as:
In conclusion, e-commerce due diligence is crucial for various reasons, such as assessing the long-term viability of a business, risk assessment and opportunities associated with different e-commerce business-related decisions. Suppose anyone is acquiring an online business, making investments, or forming partnerships. In that case, due Diligence ensures that a clear presentation of the landscape is presented so that you are well prepared to navigate through the dynamic world of e-commerce.
Several types of information can be considered while doing due –diligence, such as GST (Goods and services tax), income statements, Tax returns, balance sheets, etc.
The five things an individual or a business would want to perform are as follows:· Set Up a Virtual Data Room· Understand Corporate Financials.· Review the Company's Business Structure and Practices.· Review Assets and inventory.· Investigate Outstanding Liabilities.
There are three levels of customer due Diligence: standard, simplified, and enhanced.
Due Diligence falls into three main categories:· Legal due Diligence.· Financial due Diligence.· Commercial due Diligence.
There are four components or requirements of CDD, which include:· Understanding the nature and purpose of the business-customer relationship.· Beneficial ownership identification and verification.· Customer identification and verification.· Ongoing monitoring for suspicious activities.
Due diligence tools make it easier for businesses to assess contracts with potential new partners, vendors, or service providers.
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