Reviewing hundreds of contracts to understand the financial condition of a company can be a grueling task. Teams conducting due diligence investigations need to verify aspects like corporate structure, supply chains, litigiousness, licenses, finance and employer compliance through a microscopic lens. Due Diligence as a process is critical for investors and counterparties to comprehend the extensibility of the potential investment/engagement and requires a great amount of communication between the two parties to form a working relationship. This crucial process helps management assess the likelihood of the deal’s success and eliminate surprises after the transaction period.
Manually reviewing a huge number of documents is time-consuming and expensive. It also leaves room for inaccuracy and mistakes, which poses a bad investment scenario for a company. To eliminate the margin of error, organisations need to adopt automated tools, which will ease the process of due diligence. Here are a few reasons why automated tools will redefine the future of due diligence as we know it:
Reduce time spent on checks
Adopting AI in due diligence will spare several working hours for teams who are tasked with poring over hundreds of documents, leaving them with more time to focus on the analysis and the insights obtained from these tools. AI ensures that these tasks are accurately completed in a short period. Due Diligence is a time-sensitive activity, and it is of utmost importance to ensure that the turnaround time is as short as possible.
Machine learning tools go a long way in patterns across diligence data, which are often missed by the human eye, especially if the process is manual and spread across a large team. Natural Language Processing can be used to identify all relevant mentions in any documents that need to be studied. For instance, confidentiality, non-competition, infringement, indemnification, are all separate terms that speak of confidentiality, thereby ensuring that trust is maintained.
Ease in documentation
While going over hundreds of documents during the due diligence process, documenting and segregating sources of information linked to relevant data points is crucial. AI helps identify, classify, organise, prioritise and highlight different data points and determine which documents need to be studied further to specifically analyse a target. AI can be used to highlight all the relevant provisions in each document. This gives teams more time to look into problematic sections in the documents, if any, which would need to be reviewed manually.
Due Diligence is often a precursor to monumental shifts in the organisation structure. AI-powered due diligence allows teams to work on the intended activity faster while reducing the margin of error. The edge of accurate data-driven insights is highly valued, especially for large teams who conduct checks on larger organisations. AI reduces the burden on the team and helps reduce discrepancies and deviations that might arise due to something as simple as differences in perspectives.
Standardise metrics and extract data points
Identifying and extracting key data points helps organisations execute contracts more efficiently. For instance, a company contacting a large number of vendors must keep track of changes continuously. This may be termination provisions or penalty and damage provisions. Managing variations is a huge task and requires teams to go through contracts in detail, leaving no room for errors. AI can record and standardise these provisions in a company’s contracts and also, in the ones vendors send in. This makes it easier to identify instances of noncompliance and highlight unfavourable provisions, which can be dealt with immediately.
Most companies struggle to maintain a thorough database of all the information in their contracts, let alone find an efficient way to extract relevant data from it. In most cases, there is no quick and orderly way to identify differences, loopholes and ambiguities spanning across hundreds, oftentimes thousands of documents. It requires a huge amount of manpower and yet leaves room for errors. With the global change in work structure over the last 18 months, it is critical for organisations, now more than ever, to be agile, cloud-focused and reduce the overhead of physical documentation. Understanding what artificial intelligence can do for the due diligence process is key to successfully including diligence as a habitual event rather than an enforced task. Currently, AI-powered diligence offers one of the highest value additions for companies with large volumes of counterparties to engage with on a regular basis. The most important question we must ask ourselves is how long do we allow for human error to be an acceptable margin in the Due Diligence process. As more teams move towards automation, AI-driven diligence will surely be the key differentiator for companies looking to streamline their credibility and risk management processes.
The author is Govind Balachandran, Co-Founder and CEO of SignalX