Creating value in contracts with CLM

Organizations need to improve performances by increasing speed and reducing costs and make data-driven decisions that help determine risks, monitor financial implications and enhance goal effectiveness - all of which can be comfortably achieved with the help of a contract management software.

Author

Umashankar Natarajan

29/07/2022

1 min read

Procurement teams across industries mainly focus on improving performances, reducing spending, streamlining sourcing processes, and developing record keeping. What’s surprising is so many of these teams overlook contract management. With procurement’s dominant spends locked-in contracts, organizations need to find a way to tackle the complexities of contracts and create value that CFO’s and auditors acknowledge and appreciate. Here’s how a contract management software helps create value: 


Automated alerts 

An efficient CLM solution helps track SLAs and contractual commitments against actual delivery and project milestones. Periodic alerts can be set up for every contract to keep track of renewal times, and not knowing when a contract is about to expire can be avoided. When an automated trigger alerts users that a contract is about to expire in the next 15 days, it mitigates liability and allows both internal and external stakeholders to be prepared for expiry/renewal. 


Recognized payment terms

Most organizations generally follow a 30 to 60 days cycle for vendor payments. This may not always tally with what is mentioned in an individual contract. And, during a down cycle, payment terms are immovable. Having the payment terms recorded in a contract summary helps firms predispose possible actions seamlessly.


Visible contractual commitments 

Enterprise resource planning or ERP systems help organizations establish accruals. But, in the procurement world, environments are not always ideal. This is where a contract management software comes into play. An efficient CLM tool makes it easy by providing visibility of long-term commitments. 


Improved negotiations 

It is no news that various organizations still manage their contracts on spreadsheets and emails. This is the leading cause of loss of original contracts. In such situations, one needs to reach out to the supplier/vendor to get their hands on the actual documents. A CLM tool saves organizations from this embarrassment by creating a single source of truth for all stakeholders involved. This helps procurement teams stay on top of upcoming contractual milestones, expires and renewals and gives them time to prepare for negotiations in advance. 


Risk mitigation

For most organizations, risk is the leading cause of contract value erosion. With challenges around compliance, efficiency, process bottlenecks, reputation management and sub-optimal contract terms, an organization can be at risk beyond specific contract stages. A contract management software with AI capabilities can identify risks through assessment of contract language, sensitive data screening, agreement monitoring and risk rating. 



The value of a particular contract is determined on the basis of contract performance. To make the best of each contract, organizations need to not only improve performances by increasing speed and reducing costs but also make data-driven decisions that help determine risks, monitor financial implications and enhance goal effectiveness - all of which can be comfortably achieved with the help of a contract management software.