As CFOs manage everything that the company buys and sells, they have to deal with hundreds and thousands of contracts on a daily basis. They are not only responsible for managing costs and improving operational performance but also drive innovations and play an active role in business strategy. And for this, they need the right tools. Digital Contract Management has seen a lot of traction in the last couple of years. Besides, the introduction of AI and ML-based technologies in contract management has made it easier to make sense of the most complex contracts and keep track of what matters.
In this article, we will cover some of the challenges that CFOs face in contract management and what they really want to see.
Cash Flow Management
Managing cash flow is one of the prime responsibilities of CFOs. Inefficient contract management and lack of visibility into details cause poor decisions and a lot of headaches. Let us take the example where a CFO is trying to manage cash flow in times of a crunch or when there is no excess cash balance. He/she wants to decide on which vendors they can pay late to balance the cash. These decisions become difficult as each contract is different. Some contracts have penalties on late payments, some charge interest after 7 days of being late, while others charge after 45 days of being late, and so on. As the number of contracts increases, getting a consolidated view of which contracts are due, which ones can be paid late, which have a penalty, and so on, is a major challenge.
What a CFO wants – Accurate on-demand reports on buy-side and sell-side contracts that help them manage their cash more effectively.
When multiple parties need to work together to review and finalize contracts, managing the contract workflow becomes challenging. The back-and-forth cycle of reviews and approvals introduces discrepancies, delays, and wasted effort, even in those cases where no external parties are involved. The process gets even more tricky when these reviews have to be coordinated with external parties, parent companies, subsidiaries, partners, and other stakeholders. Managing comments, tracking changes, monitoring workflows manually introduces inefficiencies that prove costly for the company.
What a CFO wants – Efficient workflows that make it easy to work with multiple internal or external parties and shorten turnaround times.
Controlling Costs And Renewals
CFOs often find that over time it becomes easy to lose track of the contracts and pay for assets and services that may not be needed any longer. In today’s world of SaaS tools, it becomes all the more difficult to find out how many SAAS tools are actually in use. Often these services auto-renew, and enterprise pay without knowing who is using them. Sometimes team members who originally requested for the service leave the company or move to other projects, but the finance department does not have visibility into these changes. Though these costs may not be huge when looked at individually, the cumulative amount could impact costs significantly. If the finance team had advance information on expiry dates, they could get the business team’s confirmation on whether they are still using those services or need the number of users they are paying for. This would help control costs and trim unnecessary expenditures.
What a CFO wants – Timely alerts and visibility into auto-renewals to ensure that renewals do not happen before the company is notified and evaluation workflow is followed.
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Integrated Intelligence Across Systems
When CFOs are making decisions on contracts, they often need to integrate contract information with other applications that are used in the company. For example, if there are contracts that have no interest accruing clauses on late payments or have a clause for 30 days late before interest starts, they could decide to delay the payment by a certain number of days. The ability to automatically tie those vendors with their existing AP balance in an application like NetSuite would be extremely beneficial. Another example could be when the CFOs are looking at employee contracts for some analysis around stock options. They want to search through contracts to find out which employees have accelerated vesting schedules and automatically integrate with Carta for review of Employee Stock option grants. There can be numerous such integrations within an enterprise that make it easy for CFOs to optimize their decisions.
What a CFO wants – The ability to do an intelligent search on contracts and integrate with other data sources/systems for decision support and enhanced analysis.
After getting acquired by another company or in the case of a big company with subsidiaries, information on contracts owned by the parent company/subsidiaries could be extremely helpful for CFOs during negotiations. This information could also be helpful at the supplier/vendor end. Knowing which vendors are owned by a common company could strengthen the negotiation position. For example, Google owns lots of companies and brands that they may not be aware of before they start their negotiations. A list of Google-owned companies along with the spend could help negotiate better-discounted terms.
What a CFO wants – An integrated view of contracts with vendor information that facilitates faster and better negotiations.
Integrated Asset Management
To control costs, CFOs need to keep a track of assets and how much is being paid for each asset. It is important to validate assets and their value against what is put in the books. These assets could include anything ranging from furniture, machinery, equipment, devices, to third-party goods and services. Besides, they need to manage timely payouts and collections. However, it becomes challenging to make decisions on which assets need to be written off, which need replacement, etc., without getting details of the associated contracts. Looking at contracts and assets in isolation can never provide a complete picture.
What a CFO wants – Ability to tie assets to contracts so that they can optimize financial planning, as well as control and safeguard assets through proper documentation.
Mechanics Of International Contracts
While working with international markets CFOs often face challenges as there are a lot of inconsistencies in the way different countries deal with contracts. For example, some countries may not allow digital signatures while others do. As a result, international signing becomes an issue. There are numerous such issues that CFOs face while working across geographies.
What a CFO wants – An intelligent contract management system that provides visibility into country-specific details and supports corresponding workflows applicable to each country.
Due Diligence Processes
Often during mergers and acquisitions, CFOs have to provide all contracts or a sample of contracts in a data room for the buyer. Working with a spreadsheet on contract metadata that was built but is not up to date and probably does not have all the fields does not help. Besides, manually reviewing hundreds and thousands of contracts to find the best samples is very painful.
What a CFO wants – Ability to get analysis on contracts so that they can decide which ones to put in the data room for due diligence, without the need to scan them manually.
AI-Powered Digital Contract Management
Traditional methods of maintaining contract information in spreadsheets and shared folders have already exposed its flaws. When contract management becomes a one-time effort as opposed to being a continuous project, there is always the challenge of missing contracts and missing fields. However, the simple digitization of contracts does not solve these problems. A bigger challenge is to extract meaningful information from the contracts and then correlate this intelligence across the entire ecosystem associated with the contracts to drive optimizations and strategic decisions. Revnue is the only AI-powered digital contract management platform that provides a consolidated view across contracts, assets, and suppliers, enabling CFOs and financial leaders to save costs and run their business more efficiently.