3 Unexpected Ways Contracts Can Improve Your Bottom Line
Blog: Solutions Review - Business Process Management
As part of Solutions Review’s Contributed Content Series—a collection of contributed articles written by our enterprise tech thought leader community—Monish Darda, the CTO at Icertis, spotlights three ways that contracts, when properly managed, can improve a company’s bottom line.
Amidst the pandemic’s enduring economic impact, enterprises have become acutely aware of the imperative to “do more with less.” Unfortunately, even four years after the initial outbreak, new challenges such as geopolitical tensions, supply chain instability, and workforce transformations persist, relentlessly eroding businesses’ bottom lines. According to The World Bank, the global economy is currently tracking toward its slowest half-decade of growth in three decades, with projections for 2024 indicating another slow year.
In this economic landscape, executives and their organizations face the formidable task of managing costs while driving growth. Simultaneously, they must navigate improving revenue and fostering supplier relationships. One critical asset is the key to doing it all—contracts.
Contracts govern every dollar that goes in and out of business and act as the single source of truth for relationships with suppliers, partners, and customers, making contracts one of the most valuable assets in the enterprise and the foundation of global commerce. Combining the flexibility of the cloud and the intelligence of modern AI systems, intelligent contracting furthers business value by allowing enterprises to manage hidden costs, maintain the health of their current business relationships, and analyze a company’s entire commercial value chain. These criteria are critical for adapting to market conditions in 2024.
As enterprise decision-makers enter another financially stretched year, below are three key ways to achieve sales goals, reduce unnecessary expenses, and allow businesses to do more with less.
Improve Visibility
Managing expenses through enhanced visibility is a critical strategy for organizations aiming to optimize their financial performance. A recent report found that contract data is housed in an average of 24 different systems, leading to challenges in transparency and collaboration. The average contract value erosion is now nearly 9 percent, creating a significant bottom-line impact for businesses that manage thousands of commercial agreements.
If businesses want to identify cost-saving opportunities for bottom-line impact, they should start by maintaining a clear overview of spending through contracts, monitoring critical deadlines to avoid late payment penalties, and proactively analyzing contract ROI. However, taking these actions becomes challenging with poor visibility. For example, manually tracking every dollar in and out, and the obligations within every commercial agreement is a formidable task for enterprises with hundreds of millions of contracts.
The adage, “You cannot know what you cannot see,” emphasizes the importance of innovative technology. For example, the average Fortune 2000 enterprise has 20,000 to 40,000 contracts in its spending ecosystem at any time. Having visibility into the contract lifecycle with modern solutions can translate into substantial cost savings, ranging from thousands to millions of dollars.
Invest in AI
In many organizations, contracts involve up to one-third of the workforce. Leveraging AI for automation in contracting can streamline tasks to save time and money for the organization, including contract creation, reviews, approvals, execution, and archiving. This helps address the enterprise-wide challenge of contracts lacking clear ownership and accountability while enabling legal and procurement teams to focus on more strategic initiatives.
Using generative AI in contracting also creates substantial value post-signature by enabling analysis of the extensive legalese found in terms and clauses and intelligently translating it into plain language. Generative AI solutions can also locate specific terms, provide side-by-side comparisons to prior years, and evaluate contracts compared to all other agreements in the organization’s ecosystem to ensure revenue is not lost in business relationships.
Enhance Sales Efficiency
Driving revenue hinges on effective sales strategies. Intelligent contracts offer invaluable support to organizations by facilitating better negotiation outcomes, expediting approvals, and analyzing past contracts to enhance sales pipelines.
With manual or outdated processes, drafting and negotiating contracts can create extended delays and have a negative financial impact. For instance, at the most extreme end of negotiating, complex contract negotiations can take 6-12 months to complete, or in some cases, years, so any amount of time saved can be instrumental and provide cost savings for both parties.
Intelligent contracts can act as a fine-toothed comb for sales departments to ensure all relevant terms are included, there are no errors that could result in lost revenue or regulatory risk, and all data is captured in an orderly, efficient manner. Structured data should be a resource for all sales departments, as unstructured contract data can limit a company’s ability to leverage existing deals with cross-sells, upsells, and renewals or could result in service-level agreements or materials needed for service being overlooked. In the fast-paced world of sales, time is critical. Effectively managing contract processes with AI solutions and data tracking is paramount for sales teams to remain agile and responsive to shifting market conditions.
Conclusion
At face value, contracts are an inherently underrated asset, yet they wield considerable power because they are the backbone of global commerce. Because of AI technology, contract management has undergone significant transformation over the years. By harnessing the capabilities of intelligent contracting, organizations can unlock hidden cost-saving opportunities, foster healthy supplier relationships, and gain critical insights into their commercial value chains to optimize financial performance in the challenging year ahead.
The post 3 Unexpected Ways Contracts Can Improve Your Bottom Line appeared first on Best BPM Tools, Vendors, Software and BPMS.
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