Contracts outline the parameters of a business relationship with your vendors and partners. They also define performance metrics and compensatory measures if either party falls short of keeping their end of the bargain. Thus, no matter what field of the financial services industry you work in—banking, insurance, or consumer finance—your business success hinges on how efficiently you manage your contracts.
Sure, contract management won’t eliminate all threats to your business. Still, there are several worst-case scenarios that could happen without it. For instance, you might not be able to introduce a product if a contractor doesn’t submit his deliverables by the stipulated date. Or, when a client adds a provision outside the existing scope of a project, you could lose control over its budget and quality. Even worse, you may lose a major client if your team fails to stay on top of expiring contracts, renewals, and other critical deadlines.
Below we have listed three ways a finance contract management solution can help your team improve efficiency and achieve better business outcomes.
1. Supports contract compliance audits.
Contract compliance audits help businesses spot inconsistencies in a contract or a partnership procedure. And ensure that payments and services rendered align with the agreed-upon terms and conditions. They also identify potential risks, hidden costs, and untapped opportunities early on so that there are no surprises later.
While it’s true that most companies have a compliance department for handling audits, that alone is not enough to mitigate risks. This is because they often rely on paper-based contract management, have disjointed workflows, and can’t readily find the information they need. However, a contract management software will allow you to automate many aspects of a compliance audit process, thus saving valuable time and manual effort. For example, you can
- store and view documents quickly;
- revise your templates in accordance with the latest regulatory requirements;
- monitor contract obligations;
- review audit trails and version history of active contracts.
Additionally, you can leverage the power of graphical dashboards and BI analytics to:
- benchmark and track KPIs;
- extract actionable and real-time insights on contract performance;
- create and share custom reports;
- identify key focus areas for cost savings.
2. Improves business performance.
Imagine your team doesn’t update an ongoing contract to reflect the adjusted market price. Then, they attempt to sue a client for damages when they don’t fulfill their obligations. In all likelihood, the courts will not rule in your favor as your contract didn’t comply with the law of value and wasn’t legally enforceable in the first place.
Besides facing financial penalties, you also run the risk of becoming wrongfully notorious in the industry for selling products at an unfairly high (or low price) or that you rig prices to your advantage. If word gets out, this bad reputation can have a pronounced negative impact on your bottom line. It’s no wonder that a 2018 McKinsey report found that negligent contract management can cost a company up to 9% of its annual revenue.
Thankfully, with efficient contract management, you can avoid possible reputational and financial damages to a great extent. When your finance teams streamline the CLM process from start to end, it’s improbable that they overlook any of a contract’s line items—names, prices, physical signatures, extensions, revisions, and so on. The software’s added features of automated workflows, approval routing, and electronic signatures further ensure that your finance team doesn’t waste time on repetitive manual tasks. Instead, they can focus on more important duties like building stronger customer relationships and accelerating the collection of receivables. This prevents unnecessary litigation and helps you drive more sales, speed up cash flow, and improve your bottom line.
3. Boosts productivity and collaboration.
When several parties are involved in an agreement, having different contract versions is inevitable. Thus, collaborative contract management is essential to ensure everyone is on the same page. Suppose the legal team is solely responsible for drafting contracts and getting them approved by stakeholders. In that case, they’ll often be stretched too thin to pay attention to deadlines and work quality. Soon, job burnout will affect their work performance, causing them to deliver shoddy contracts bound to be rejected.
For this reason, most contracts never see the light of day. And even when they do, relevant personnel use outdated ways like filing cabinets and email threads to store and manage them.
You might have some of the best contract lawyers on your team. But the fact remains: without a proper contract management solution, it’ll always be an uphill struggle to put together scattered pieces of vital contract data and deliver milestones on time. On the other hand, collaborative contract management allows for departments other than legal to participate in the contract lifecycle through sales, procurement, and other business functions. Another benefit of effective contract management is a shorter contract lifespan when teams organize and manage their legal agreements themselves. This goes without saying that the finance department is no exception.
Final Thoughts
To summarize, inefficient contract management means missed renewals, ignored obligations, and lost opportunities. With the help of a finance contract management solution, ideally a software, your team can streamline the entire contracting process, from start to finish. It also takes the pressure off the legal team and maximizes efficiency by automating manual administrative work.