With the right approach to their contracts, companies can maximize the value of their relationships with customers, suppliers, and partners.
The global market has grown increasingly turbulent, with inflation rising and the risk of recession growing. In response, organizations are realigning their focus to ensure their fundaments are sound. Nothing is more fundamental than contracts writes Monish Darda, CTO, and Co-founder, Icertis.
Contracts define the rules of business and govern every dollar that goes in and out of an organization. Failure to meet contractual obligations, purchase price discrepancies, and regulatory noncompliance can seriously threaten the bottom line when every dollar counts.
With the right approach to their contracts, companies can maximize the value of their relationships with customers, suppliers, and partners.
Mismanaged Contracts Lead to Revenue Leakage
Contracts are the foundation of commerce and capture the intent of every business relationship. When contracts are mismanaged, they can lead to gaps in business processes – resulting in revenue leakage across the enterprise.
World Commerce & Contracting (World CC) estimates that, on average, 9.2% of a contract’s value is lost due to organizations not taking full advantage of the terms within them. Much of this loss happens post-signature.
The reason why contracts are mismanaged isn’t hard to understand: Contract information isn’t presented in spreadsheets and tables. It’s presented in legal language that describes the intent of a business relationship. This has made it hard to digitally transform contracts and contract management. Computer systems couldn’t understand intent, so they couldn’t structure contract data in a meaningful way.
Utilizing AI to Unlock Contract Data
Artificial intelligence is changing the way companies manage contracts. AI can be trained to recognize clauses based on patterns in text, allowing organizations to transform contract intent into enterprise data. Having quick and accurate insight into contract terms and obligations is invaluable in times of economic turbulence.
Contract intelligence gives companies a 360-degree view of their entire contract portfolio, allowing them to operationalize the information more efficiently than ever before.
With contract intelligence, businesses can ensure that the intent and value of every contract are correctly memorialized and fully realized.
Contract Intelligence Helps Maximize Revenue and Savings
Contract intelligence has a direct impact on a company’s bottom line. With contract intelligence, organizations can maximize their revenue and increase savings by utilizing contract information that was previously inaccessible to them – a profound benefit regarding an organization’s P&L.
On the buy side, businesses can protect their margins by minimizing input costs and ensuring the organization receives the best price negotiated in their contracts, including volume pricing and rebates that often get overlooked.
Meanwhile, on the sell-side, businesses can accelerate their sales cycle, capturing revenue faster than ever before—then ensure they realize that revenue post-signature. Amid inflation, we have seen customers leverage AI to surface clauses across their contracts that allow them to raise prices based on CPI and other indexes; this has saved them millions by leveraging contract entitlements already on the books.
Conclusion
Contracts are the foundation of commerce, governing every dollar in and out of an organization. Investing in transforming these documents into strategic assets, and the processes around them
will help to ensure your organization is prepared for every change the turbulent market might present.
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.
