Contract management is an essential element of any procurement system. Managed contracts can save businesses money and reduce risks. But without the guidance and oversight of a contract management system, contracts can cost a business more money than necessary, increase operational risk, and lead to various other issues.
CFOs or Chief Financial Officers recognise effective contract management as a way to reduce costs and eliminate business risks. As a result, they are now looking for ways to improve their operations in this area. With that in mind, here are some points you should know about the role of CFOs in the contract management system.
7 Expectations of CFOs In Contract Management
The 2018 Deloitte Global Chief Procurement Officer Survey reveals that monitoring, risk management, and technical improvements are among the most pressing concerns for CFOs.
1. Cash flow management
CFOs manage cash flow. An inefficient contract management system and a lack of details cause bad decisions. In a Deloitte 2021 survey, 44% of CFOs said that supply chain bottlenecks or delays had caused their organisation’s expenses to rise by at least 5%. CFOs analyse the supply chain and expenditures and use many techniques to boost working capital to improve cash flow.
2. Ensure contract compliance at all times
CFOs expect the contract management system to always comply with contract compliance. Compliance involves consumer agreements, procurement policies, and regulations. Customer contracts should be monitored to update contractual obligations if their requirements change. CFOs must track client demand, handle receivables, and make timely payments.
3. Maintain a constant focus on risk management
CFOs go beyond compliance. Assessing and managing contract risks should be ongoing. Pricing, market conditions, product development, and customer/supplier performance pose risks. If your company’s raw material costs rise, a client may request a price increase. If the consumer can’t afford the price increase, they can cancel. CFOs analyse raw material prices to predict cost and pricing impacts.
4. Provide real-time visibility into contractual status and exposure
CFOs expect contract management to provide real-time visibility into contractual terms and performance. They design new tactics to help organisations manage contractual obligations and exposures arising from contractual non-performance. Better business visibility helps in revenues.
5. Be responsive to changing conditions and events
CFOs respond to changes that might affect contractual performance. They track any changes in client needs, including contractual performance objectives.
Suppose the client wants to change the contract’s payment conditions or delivery date. Your company should be able to record this modification request in the contract management system. CFOs will monitor the acceptance or rejection of contractual conditions or performance goals using contract management tools.
6. Integration with broader organisational processes
CFOs expect contract management to be designed to integrate with broader organisational processes. This integration ensures that contract management feeds into wider revenue recognition, compliance monitoring, vendor management, and other financial processes.
Contract management systems should be able to integrate with other applications, such as an accounting system, procurement system, or enterprise resource planning system.
7. AI contract management system
Many organisations rely on written contracts in the 21st century. Current statistics suggest that 55% -70% of businesses do not use efficient contract management tools.
CFOs grasp company challenges in a better way with AI contract management systems and new technological trends. Furthermore, CFOs may reap the benefits of big data and e-procurement with the aid of various technologies, such as programmes that carry out repetitive, standardised, or logical activities, such as processing transactions or integrating data to extract business insights.
By 2023, 40% of I&O teams in large businesses will employ AI-augmented automation, increasing IT productivity and enabling better agility and scalability.
Contract management is a critical business function. It ensures that organisations meet the terms of their contracts and operate within compliance. As an organisation grows and faces new challenges, its contract management system will also change. It’s up to the CFO to ensure that contract management meets current and future needs.
Procol is an adaptable and intuitive e-procurement system that has helped organisations save money and time. Schedule a demo to comprehend its adaptability to your business’s procurement requirements.