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Objectives of Vendor Due Diligence in UAE

Vendor due diligence (VDD) is important as it provides assurance to potential buyers. That prospects are healthy financial-wise and has acceptable levels of risk for money laundering.

Vendor Due Diligence in UAE: Objectives

Vendor due diligence in UAE primarily facilities a successful partnership or sale of companies and assets. It also helps sellers gain an in-depth understanding regarding the risks that their companies face. The objectives of VDD, in more detail, include the following:

  • Supporting figures, facts, and other data that offered in a company’s sales memorandum
  • Offering partners and buyers with certainty in relation to the target business’ financial position. Or financial health, as well as the nature of the business’ cash flow
  • Helping sellers make appropriate decisions on their pricing for their assets and businesses
  • Identifying significant liabilities such as risk issues
  • Reducing the disruption of the sales process onto the daily operations of the business
  • Helping all the parties that involved with the transaction to excuse the process of sale or partnership with efficiency and speed

What is the best practice for Vendor Due Diligence in UAE?

Important aspects that businesses have to consider as they prepare for the process of vendor due diligence. Or engaging a service provider in performing an audit include the following:

  • Collection of data – the process of vendor due diligence in UAE will require the proper collection and management for massive amounts of data and crucial information
  • Monitoring – specific screening processes for vendor due diligence such as screening for negative news media can require ongoing tools for monitoring which are capable of capturing the range of all data points
  • Verification – the information that is collected and generated with the process of vendor due diligence has to be checked for accuracy by a reliable specialist

Similar to customer due diligence in UAE, VDD have seen as an ongoing procedure. Companies have checked at different points all throughout a sales process in order to make sure that the risk profile hasn’t been changed.

You should know: Why Vendor Due Diligence in UAE is Important ?

Advantages of performing Vendor Due Diligence in UAE

With the globalized nature of the business environment today. Businesses exposed to various regulations that mandate them in mitigating risks. That posed by third parties and external vendors. This makes vendor due diligence, most especially in UAE, an integral part to compliance processes.

Vendor due diligence will undertaken by a business prior to it partnering or purchasing an external entity. The process is to assess and detect associated risks such as breach of regulations and unfair business practices.

Other benefits of performing a thorough Vendor Due Diligence in UAE are as follows:

  • The process helps businesses in mitigating exposure not only to money laundering but also bribery and other forms of corruption
  • It helps businesses uncover what the reputation of a vendor is and conduct proper assessment as to whether its relationship would prove to be harmful or fruitful
  • Vendor due diligence allows businesses in understanding vendors and offer insights with regards to what the aspects are which need to be focused on

Risk assessment from a Vendor Due Diligence conducted in UAE has to take into consideration certain attributes that are critical such as:

  • Vendor's country of origin;
  • The risk that is borne from the industry that the vendor operates or belongs to as certain business sectors e.g. gas exploration, oil, and defense, pose higher risks in comparison to others;
  • The share structure of the business;
  • The shareholders that involved and the profiles of the shareholders;
  • Purpose of the business transactions

The solo way in complying with code of ethics that apply globally (as well as code of conduct) is to perform a rigorous vendor due diligence and do it diligently. The VDD process should not only be implemented prior to entering into a contractual agreement with a certain vendor but also regularly or periodically in order to uncover any issues and monitor the new business relationship actively.

Find more: How Vendor Due Diligence is Conducted in UAE?

The first step of Vendor Due Diligence, as mentioned earlier, is data collection. The primary information or data that are to be collected include:

  • Geographic location of the vendor
  • Line of business
  • Incorporation documents
  • Ownership of the business
  • Political connections
  • Leadership team

Of course, the information that are collected have to be verified by reliable sources in order for a business to arrive at a perfect risk scoring. With a high risk seller or vendor, for instance, including its associated entities and subsidiaries, it calls for a more enhanced process of vendor due diligence. Negative news checks and sanctions assessments are necessary in establishing any risks that are hidden.

Read more: How Businesses in UAE Conduct Due Diligence

We know you require more information regarding vendor due diligence in UAE. For further clarification and expert guidance, do not hesitate to contact the experts in Farahat & Co.