Contract management is an important aspect of managing business relationships, and 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 important to the entire organization.
There are many benefits of a contract management solution. Organizations where no solution exists suffer quantifiable losses. Spreadsheets combined with manual approaches are old-fashioned; they lack integration to other systems like CRM or ERP, lack organizational access, lack important alerting, and can’t be scaled to match growth.
Here are three BIG benefits of a contract management solution:
#1 Risk Reduction
Enforcing and operating on the latest terms, conditions, controls and policies improve overall 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 buyside, 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 allows for easy identification of contracts with suppliers 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 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 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 important data such as dates, and offers automated reminders and tools that let users schedule notifications as needed. By eliminating manual processes and centralizing your document repository you gain greater control and improve efficiency.
Negotiating a contract is only part of the relationship. Companies need to ensure that they are adequately managing the 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.
If you enjoyed this blog post, you might also be interested this white paper by Spend Matters, “Contract Lifecycle Management 101: The Standard Contract Management Platform.” Download the paper here.