Contracts are more than just paperwork; they're financial commitments that can impact a company's bottom line. As such, the Contract Lifecycle Management process is pivotal for CFOs, guiding everything from vendor relationships to compliance measures. But what’s the tangible value of streamlining this process?
As CFO at Malbek, we see numbers speak louder than words. As highlighted by Malbek, a mere 40% of businesses monitor the financial impact of CLM. This is surprising given that CLM systems yield an ROI of 150-200%. Furthermore, WCC reports that the average cost of a low-risk contract from initiation to signing is a whopping $6,900, a figure that's surged 38% in the last six years. High-risk contracts? A staggering $49,000 per contract.
The cost of neglect is clear: poorly managed contracts result in an average revenue loss of 9.2% annually due to pitfalls like prolonged negotiations. This figure soars to 15% for larger enterprises. And if that's not alarming enough, the Journal of Contract Management reveals that 71% of companies can’t locate over 10% of their contracts. Such misplacements can be exorbitant, causing penalties, missed renewals, and significant governance issues.
Let’s shed light on this ROI, here are the 10 things you, as a CFO, need to know about CLM.
1. CLM Impacts Bottom Line Directly: Every stage in a contract's life cycle, from negotiation and drafting to compliance and renewal, can influence the financial performance of an organization. Efficient CLM ensures you're not leaving money on the table. It helps in reducing costs, preventing revenue leakage, and taking advantage of opportunities for renegotiation.
2. Automation Drives Efficiency: Manual contract management is not only time-consuming but also prone to errors. Automating CLM processes ensures accuracy, saves time, and reduces the potential for costly mistakes. For instance, automated reminders can prevent missed deadlines or auto-renewals that aren't in the company's best interest.
3. Risk Management is Integral: Contracts often come with associated risks – be they regulatory, financial, or operational. Effective CLM provides tools to identify, assess, and mitigate these risks, ensuring that CFOs can safeguard the organization's interests and maintain compliance.
4. CLM Offers Strategic Insights: The right CLM system doesn't just manage contracts; it turns them into actionable business intelligence. By analyzing contract data, CFOs can glean insights into vendor performance, cost management, and market opportunities, guiding strategic decisions.
5. Flexibility Matters: The business landscape is ever-evolving, and contracts need to reflect this dynamism. Having a CLM system that allows for flexibility in terms, renegotiations, or quick exits can be invaluable. This agility ensures the organization remains competitive and can adapt to changing circumstances.
6. Unified Repository is a Game-Changer: Imagine the time and effort saved if all contracts, regardless of their type or origin, were stored in a single, easily accessible repository. A centralized system not only promotes consistency and ease of access but also ensures that critical contractual obligations or deadlines are never overlooked.
7. CLM Enhances Collaboration: Contract management isn't the sole domain of legal teams. It requires collaboration across departments – from procurement and sales to finance and HR. An integrated CLM system promotes inter-departmental collaboration, ensuring all stakeholders are aligned and informed.
8. Compliance Cannot be Overstated: With global operations come global regulations. Whether it's GDPR in Europe, CCPA in California, or any other regulatory framework, contracts must be compliant. A robust CLM system ensures that compliance is maintained throughout the contract's lifespan, shielding the organization from potential penalties and reputational damage.
9. AI and ML are the Future: Artificial Intelligence (AI) and Machine Learning (ML) are revolutionizing CLM. These technologies can predict contract performance, streamline negotiations by analyzing historical data, and even automate the drafting of standard contracts. Embracing this technological shift can position a company at the forefront of efficient contract management.
10. ROI is Measurable: As with any investment, CFOs will want to measure the return on investment (ROI) of a CLM system. The good news is that the benefits – from time saved and risks mitigated to increased revenue opportunities – can all be quantified. An efficient CLM system often pays for itself many times over.
For CFOs, embracing a robust CLM system isn’t just about streamlining operations; it's a strategic move with undeniable ROI. It's about safeguarding revenues, preventing losses, and propelling the organization towards sustainable success.
For more insights into our vision and the economic impacts, including ROI, of our solutions on contract lifecycle management, visit Malbek.