The complexity of today’s global market means there are more risks inherent in running a business. Between a shifting regulatory landscape and cyber breaches, many companies are focused on risks external to the company. There is, however, a significant hidden risk, and opportunity for revenue gain, that lies internally within a company’s contracts.
Why Contract Management Is Important
Vallen is an industry-leading provider of indirect industrial supplies. Like most companies, we are very focused on customer satisfaction and meeting our commitments is extremely important. Knowing our contractual obligations as well as having visibility into our agreements with suppliers and customers enables us to better deliver for our customers while being responsible for our own business results.
Contracts dictate every facet of business relationships and therefore every dollar that flows into and out of a company. The average Fortune 500 business has anywhere between 20,000 and 40,000 contracts and yet 70 percent of businesses can’t even find all of their contracts. All told, contract mismanagement results in an estimated yearly 9.2 percent drag on revenues.
A few years ago, we realized our manual contract management process added unnecessary risk to our business operations. While we were ahead of many businesses, with most Vallen contracts already stored in a digital repository, none of the important data points within those contracts could be queried or collected into a single view.
Our Contract Lifecycle Management journey
We adopted contract management software that gave us complete insight into our contracts and allowed us to maximize revenue, control cost and manage risk. Our implementation phase took 90 days with only 2 dedicated headcounts and we immediately identified three benefits:
1. Improved Contract Turnaround Time
Our Contract Lifecycle Management (CLM) system removed the process of using email to secure the approval of contract terms and clauses. Where our previous contract turnaround time had been at least seven days for every contract, we now can turn the less complex contracts in a few hours. Meanwhile, the system increased efficiency by automatically tracking the lifespan and terms of those contracts, a process that previously relied on a spreadsheet that required constant updating. Finally, the software enabled sales and procurement teams to request contracts almost instantly and on-the-go, knowing that they are compliant and contained pre-approved language.
2. Improved Visibility and Reporting
Our system improved visibility and reporting in several ways. The owner of each contract can easily see the status of the contact in the system and once executed can access the contract with a few clicks. Our contract management software also allows the approvers and regional managers to report on and review multiple contracts that impact their area. Finally, having the ability to report on rebates and other commitments within contracts allows the supplier side of the business to plan for purchases that will maximize the value of our vendor relationships.
3. Better Risk Management
With CLM, we can evaluate how an individual contract might impact our revenue goals and risk profile. Every contract can be viewed in relation to the company’s larger goals. Also, because the system is centralized, employees can’t write one-off contracts out of sight and unknowingly open the company to greater risk. Robust contract analytics allow the company to view overall risk exposure and make business decisions with full visibility into potential impacts on existing contractual relationships.
Maximizing Contract Value
Business is too complex, and evolves too quickly, for contractual details to be lost in spreadsheets or paper documents.
For every facet of a business that excels, poor contract management can sabotage that success. For Vallen, the unrealized value within our contracts and risk inherent in their terms and conditions were too great to leave to manual tracking methods. By adopting modern contract management software, we increased efficiency, improved visibility, and reduced risk while identifying opportunities for increased revenue.
In today’s hyper-competitive marketplace, those benefits can mean the difference between red and black ink on the P&L.
The author is Director of Finance at Vallen Distribution, Inc. This article originally appeared in AiThority.