Contracts are the foundation of business. So it stands to reason that contract management (or Contract Lifecycle Management / CLM) is indispensable to managing business relationships. A contract management solution is the critical tool used by companies to get the most out of agreement terms that take so much effort to negotiate. While executing and monitoring a contract to maximize financial and operational performance and minimize risks may not sound sexy, it is safe to say the success of your entire organization depends on it.
It literally pays to get contract management right.
Even mid-size companies can have thousands of active contracts in effect at any given time – a level of complexity that is impossible to manage without technology. Organizations where no solution exists suffer quantifiable losses. Spreadsheets combined with manual approaches are old-fashioned; they lack data integration and integration with other systems like CRM or ERP, lack organizational access (such as a repository), lack important alerting features, and can’t be scaled to match growth. In an age of digital transformation, manual processes are a one-way path to obsolescence.
Here are three BIG benefits of a contract management solution:
#1 Risk Reduction
Enforcing and operating on the latest terms, conditions, controls and policies improves overall contract compliance. According to Aberdeen, compliance management is improved 55% with a contract management system. Being compliant, and being able to demonstrate it, depends on traceable audit trails and compliance monitoring. On the buy-side, standardizing processes and procedures decreases maverick buying and supply risk while increasing spend leverage. The net effect is that supply chain risks are reduced and buys as a whole become less costly and more valuable.
Furthermore, a contact management system enables much greater effectiveness in supplier onboarding with the right validation and certification tools. It also makes for easy identification of contracts with diversity suppliers and those in high-risk zones — due to natural disasters, political unrest, or economic uncertainty — that is critical to organizational risk management. Also, policy or regulation violations can be caught and dealt with quickly.
#2 Financial Optimization
A contract management system helps to reduce legal fees and eliminate unplanned renewals of unwanted services. Additionally, spend visibility is another high-value benefit: according to Ardent Partners, enterprises that link their sourcing and contracting processes are more likely retain a higher percentage of identified savings.
In fact, best-in-class procurement teams reported an annual savings rate that is 37% higher than their peers. Buying from approved suppliers at the right times, for the right quantities at agreed-upon prices reduces “off-contract” spending or maverick spending. And tracking rebates, delivery terms and volume discounts can insure that all of the savings negotiated in a sourcing cycle are captured.
#3 Productivity / Operational Effectiveness
Forecasting is vastly improved with better data and analytics. A contract management system tracks critical milestones and provides automated alerts and tools that let users schedule notifications as needed. By eliminating manual processes and centralizing your document repository you gain greater control and improve process and workflow efficiency.
Negotiating a contract is only the beginning of a relationship. Companies need to ensure that they are adequately managing their obligations and agreements. Using the proper tools to track and monitor contracts will impact your company in a positive way, making a big difference in managing supplier relationships and spend.
Ensuring the contractually correct amount of revenue is realized as early as possible can substantially impact an organization’s bottom line. The resulting ROI is typically many times the cost of implementing and operating a contract management solution. And projects are usually completed in a much shorter time.
To learn more about how much a contract management solution can do to improve your business impact, download the Determine CLM Starter Kit.