Is there a hole in your bucket?
Poor contract management means you might be losing up to 9% of your annual revenue.
The surveys make grim reading across the Legal and Finance sectors. World Commerce and Contracting suggests that, on average, companies are losing 9% of their annual revenue as a result of poor contract management. ThoughtRiver, one of our technology partners, has found that 69% of the senior lawyers and GCs surveyed don’t have good visibility of their major contractual obligations.
“Revenue leakage is a challenge that a lot of organizations face,” explains Head of Technology and Transformation, Babar Hayat. “They have contracts in place with customers and suppliers, but they don’t necessarily come to realize the value of that contract”. Poor contract management processes such as expired contracts, missed deadlines, unimplemented amendments, unenforced price increases or forgotten renewal fees are some of the reasons why an organization misses the opportunity to maximize the value of its contracts.
How big is the hole?
With the economy set to be hit further by the fallout of the global pandemic, plus more localized issues like Brexit coming to fruition, not wasting potential income will become more important than ever. “Things will undoubtedly be tougher in the wake of the pandemic and it’s not just a legal problem,” says Babar. “If you’re a CFO or GC of a business with hundreds or thousands of contracts, and you don’t realize the maximum from them, that is a big problem. Effective contract management can pivot the in-house function from being a cost line to a revenue generator.”
“It’s a big challenge though. With large numbers of contracts, how do you easily identify those leakage issues? How do you make sure you’re meeting your contractual obligations? Are you passing on annual inflationary price increases? There are lots of things to consider that can represent significant value for organizations.”
Fixing the leaks
“Our starting point is always trying to understand the scale of the problem,” says Babar. “Stage one is to take a sample selection of contracts and look for key criteria, such as expiry dates or SLAs or minimum spend commitments. We use artificial intelligence tools which can quickly identify the key data points. We then reconcile them within the organization’s financial system. This allows us to find the contracts and evaluate the scale and benefit of resolving the issue.”
“Stage two is resolving the issues identified. We can support the recovery on high value/risk contracts in a time and cost-effective way. By liaising directly with the relevant contractual counterparty on your behalf, revenue leakage can be plugged without monopolizing valuable in-house legal, procurement or finance time”.
“There’s a longer-term picture here as well. Doing this as a one-off exercise is fine and it will clearly deliver benefit. But it’s important to think about how you manage your contracts on an ongoing basis. We can help you by optimizing your contract management processes, using technology to track contractual obligations quickly and efficiently. We can also embed automatic reminders to help manage the process because, a year down the line, you don’t want to be back in the same position again.”