During customer due diligence, the aim is for your potential customer to decide whether the risk they will inherit from using your product or service is acceptable in relation to their security expectations and risk appetite. If a customer decides this is not acceptable, they will not buy. If they purchase your product and later decide the risk has changed, they can revisit this decision and may choose not to renew their contract or ask for a change in the product or operations.
Misrepresentation in customer due diligence may lead to poor customer relations, lost customers, and lawsuits; however, these are limited to the terms agreed in your operating terms of service and often have a fixed maximum limit of liability.
In financial due diligence, things are quite different.
Financial due diligence is the precursor to investment, company purchase, IPO, or acquisition. These are significant transactions that involve material sums of money. If an investor chooses to fund your organization and finds that the information they received in financial due diligence was incorrect or misleading, the consequences for your company (and you as a company director) can be significant.
While these consequences will differ from deal to deal and country to country, they will often include things like:
Directors being held legally and financially liable for any claims made against them in relation to information provided during due diligence that was found to be incorrect or misleading.
Directors or executives losing their role in the organization.
Forfeiting any shares or payments held back or with a vesting period.
The claims or promises made during the financial due diligence process are known as warranties.