Due Diligence Always Pays Off

As any business owner will attest, business can be hard.

Securing new customers; meeting the needs of existing clients; ensuring processes are being adhered to; staff are getting paid and well managed, all the while trying to turn a profit.

It’s no wonder so much time and ink is spent on advisory articles, with experts offering sage insights into how businesses can improve their cash flow, enhance employee engagement and so forth.

One crucial area, however, is overlooked time and again. I’m talking about customer due diligence (CDD).

While the 2007 Regulations highlight the importance of CDD as a means of identifying suspicious transactions on the part of their customers, in terms of money laundering and so forth, the benefits go far beyond simple compliance.

Indeed, effective CDD can be the difference between the success and failure of your business.

In its simplest form, due diligence is a set of processes utilised by a business to get a better understanding of a potential client, their regular business patterns, that they are who they say they are, etc.

In all financial transactions – and that means selling goods or services to someone else - it is imperative to know precisely who you are dealing with.

Beyond the issues of money laundering, failing to do so can result in cancelled production orders and missed payments.

For many of Britain’s small businesses, a client’s decision to renege on a large order - for which you have invested heavily in labour, materials and so on - can be enough to kill your business.

In the 2014 comedy, Horrible Bosses 2, this is exactly what happens when an ambitious start-up’s competitor attempts to put them out of business. While the Hollywood hit then descends into madness, you can be sure it occurs in real life daily across the country.

Today, the banks and other financial ‘institutions’ primarily use complex and expensive credit-scoring systems and other such impersonal methods for assessing credit, where the decision to lend is based on a set of numbers going a number of years back that are intended to offer a clear picture of the kind of person you are, and the level of risk lending poses to you.

While they may work nine times out of 10, there is always the 10th time and that is why Judging the integrity of a borrower  - or in the case of a business, a new customer - is surely a crucial item of customer due diligence.

This isn’t something that can be done from your office, through the screen of your laptop. You need to meet the customer and get a feel for them and their business.

Some readers may recall a time when local banks actively practiced this - visiting customers when considering a credit facility or loan.

In many instances the secondary finance market still offers this all important aspect of due diligence, especially where you have distribution through local agents, representatives of even franchisees.

We have built an incredibly successful franchise by developing a due diligence process that cuts out 99 percent of the risk for our franchisees and empowers them to confidently acquire new customers in a short time frame, sometimes in as little as 24 hours.

A core tenet of the IFG approach is very simple - don’t do business with anyone unless you have visited their place of business and made the all-important face-to-face judgment call.

If you change only one thing in your business this year, let it be this. Enhance your due diligence by not getting overly excited at the prospect of a new customer - take the time to visit them and learn more about them.

I can almost guarantee you the number of completed orders and timely payments will show at the end of your financial year.