Nowadays, businesses require accurate information and analytics to help drive intelligent business decisions. Analytics that can be interpreted insightfully is vital to business growth and competitiveness on the market; however, many companies struggle to break down organizational barriers and gain valuable information from their business operations. The most often overlooked treasure trove of available data is contained in contracts. Contracts form what’s known as the “relationship DNA” between two organizations. They serve as the manual for two parties, which establishes the parameters for performance and risk to the relationship. Thus, the insights gained from data on contracts could bring significant benefits to all businesses.
Why aren’t more companies using this information to create better roads and to help reduce the risk?
Certain executives might be worried about the expense of analyzing information from thousands of documents, and their teams might not have the tools or resources to look through the plethora of contracts. This is where the proper Lifecycle Management (CLM) procedures become crucial. Companies that follow CLM can simplify contracting to cut down on time and labor. Below are the three most effective practices to allow companies to gain from current contract information.
1. Monitoring Contract Data To Determine the Value of Business Relationships
With the advent of collaborative tools online, contract development and management have become an inter-departmental collaborations. Today, CLM can be leveraged by all company departments instead of only legal teams to link data across the enterprise and make business-oriented decisions.
The Value of a business partnership isn’t as easy as it may appear. A simple snapshot of the profit and loss of a client is just one part of the equation. An in-depth understanding of the hidden costs and risks in your contracts with the client is accessible when you access the contact information. What is the profit margin this customer will be if some of your environmental, operational, or third-party risks become real? What are the chances of profiting from this relationship when you cannot keep the requirements of your service level agreements (SLAs)?
Companies must enhance their internal and external contracting process to gain deeper insights to understand this data better. This is the aim of the CLM system. Once a CLM is operational and operational, business leaders can take business decisions in line with these data. For instance, businesses can analyze and study how their sales practices can create concealed risks and if they can be covered or reduced. They can also answer crucial questions such as: What do the implications of the business’s decision to cut costs or switch to more risky supply sources?
2. Management of Contracted Performance
In the ever-changing and competitive business world, executives from the C-suite recognize that there is always the possibility that there could be unexpected costs resulting from our own choices or ones outside of our control. The CFO’s job is to ensure we maintain control of the expenses and opportunities we’re aware of or ought to be since they are on our contract. This is why CFOs appreciate CLM. It lets their companies handle binding obligations like deadlines and penalties for payment to stop revenue loss.
Beyond the key clauses of a contract, monitoring the performance of a contract can be a challenge on a large scale. This is where CLM’s worth is evident. CLM is a CLM tool that can extract obligations from contract language for all customers and projects. In conjunction with downstream commercial tools such as the CLM, we can compare performance metrics to what is happening in the real world. Imagine tracking responses to SLAs and project deadlines, discounts on quantity, or on-time delivery of supplies versus the terms of the contracts. The majority of teams manually are unaware of what was agreed upon and don’t get the chance to receive discounts or compensation. When this process is automated with CLM and other downstream systems, business relationship managers will be alerted when performance reaches the thresholds set by the contract.
3. Negotiating better contract terms
Another advantage of a consistent approach to managing contacts is that the business is more prepared to negotiate agreements with customers and partners. When you view clauses in contracts as data points instead of legal terminology, the sales and procurement teams can look over the terms in their contract portfolio. They can discern patterns, such as what terms vendors or customers are restraining or when they’re willing to give up during negotiations. Armed with this information, they can remain firm in negotiations and anticipate which clauses could result in incredibly conflicting disagreements.
Modern CLM allows procurement and sales teams to gain market insight by monitoring pricing of vendors’ technology, developments in technology, and other standards that apply to client and vendor relationships. Before negotiations begin for an agreement renewal is a good idea to review the terms of the agreement to see whether the words are still competitive—advantage in the market.
Making use of the CLM to help improve negotiations comes with numerous benefits. For instance, prolonged discussions can lead to difficult beginning points for new partners and customers; therefore, it is better avoided. The speed of contracting can affect the cash flow of a business. Companies who are flexible and quick can have a greater chance of having more accessible spotting opportunities in the industry that require short time frames for turnaround.
The Impact of Contracts on the Bottom Line Management Best Practices
The reality is that many companies do not realize the strategic significance of their contract agreements due to the vital business information they provide. Implementing a lifecycle management system for contracts allows businesses to understand their contractual obligations better, create different complementary commercial strategies, and take advantage of all the advantages gained during a grueling negotiation.
In the current business environment, which is highly competitive, Enterprise leaders have to use every lever in their arsenal to make better business decisions using the latest information they have at their disposal. For many businesses, valuable business data contained in contracts remains a new resource waiting to be released.