If the economic downturn has shown anything lately, it’s that some companies may need a bathing suit. As economic uncertainty tightens the global economy, companies are shifting their focus from hypergrowth to ensuring that fundamentals are sound. Nothing is more fundamental than contracts.
In fast-paced business environments, failure to adhere to contract terms—in the form of unfulfilled entitlements, purchase price discrepancies, regulatory noncompliance, or missed deliveries—poses a serious threat to businesses at a time when every dollar counts.
Conversely, by focusing on contract compliance, CXOs can make their companies more resilient by maximizing the value of their relationships with suppliers, customers, and partners while strengthening bonds across their contractual network. By taking a data-minded approach to contracts, enterprises can ensure the intent of every contract is correctly memorialized and fully realized. We call this contract intelligence.
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Mismanagement of Contracts Leads to Losses
Contracts are the foundation of commerce. They define business rules and, ultimately, every dollar in and out of the organization. So, when contracts are mismanaged, they can create a serious leak on operations in the form of lost revenue, missed savings, or contractual noncompliance that can cost companies in the form of fines or lost trust.
World Commerce and Contracting (WorldCC) estimates that, on average, 8% of a contract’s value is lost simply because of poor management.
The reason why contracts are mismanaged isn’t hard to deduce: contracts are often written in dense legal language that can even give seasoned lawyers a headache. Most people’s eyes glaze over after reading three paragraphs.
Because contracts are hard to extract actionable business information from, they are usually filed away after they’ve been executed and only referred to when problems arise.
According to an Icertis customer, the director of contracts at a major US industrial supplier put it recently: “Business is too complex, and evolves too quickly, for contractual details to be lost in spreadsheets or paper documents.”
New Technology Unlocks Contract Data
Despite the problems manual contract management creates, the digital revolution has been slow to reach contracts. The nature of contracts has traditionally made them challenging to digitize in an impactful way. Contract data is unstructured, making it difficult for simple digital systems to understand. That’s why many contract “digitization” efforts amount to little more than converting paper documents to PDFs, storing them in the cloud, and calling it a day.
Technologies like cloud computing, artificial intelligence (AI), and APIs are transforming all this.
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Today, AI-powered contract intelligence systems can analyze contracts at scale, structuring their data, metadata, and other contextual information so enterprises can get a handle on what’s in their contracts. The systems can then connect contract data across the enterprise to ensure that what’s happening in the business aligns with what was agreed to in the contract.
This kind of structured and connected contract data is invaluable in times of economic turbulence. Contract intelligence platforms allow companies to look across their entire contract portfolio and understand how it is performing.
Most importantly, with contract intelligence, businesses can ensure that the intent of every contract is fully realized.
Maximizing Contract Value with Contract Intelligence
With contract intelligence, the data in contracts can finally be monitored and analyzed in detail, with savings and revenue opportunities fully surfaced.
In stable times, this assures that a company delivers what it promised and—more importantly—is paid for what it delivers. In an uncertain economy, this visibility is even more critical, as it allows finance departments to respond immediately to new risks and opportunities.
This insight means businesses are realizing the full value they intended with all their business relationships, delivering stronger performance exactly when it is needed most.
Conclusion
With contracts governing every dollar in and out of an enterprise, investing in digitally transforming these documents and the processes around them is critical to ensure your organization is prepared for whatever comes next. Now is the time for businesses to ask themselves whether their fundamentals are sound – and how they can come out of the other side of today’s economic turmoil stronger.
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