Your business has contracts. Lots of them. And while you know that your contracts influence every aspect of your business, did you know that those documents also likely contain multiple opportunities for significant cost savings?
It’s true. Although many businesses treat contracts as static documents, which are signed, filed, and not thought of again until the expiration date nears (or sometimes not even then) contracts are living documents that need to be managed. By effectively managing contracts, your company can not only ensure that contract terms are being met as agreed, but also that you are reducing risk and the financial burden on your company. In an era in which efficiency and cost-cutting are at the top of most leader’s priority lists, properly identifying and acting on cost-savings opportunities in contracts is a must.
Contract Process = Savings
Saving money via contracting begins with an effective contract lifecycle management process. An increasing number of companies are turning to contract management solutions as a means to handle contracting more efficiently, from the early stages of negotiation and drafting through post-execution management. Rather than cumbersome processes involving multiple drafts stored on different hard drives, delayed contract reviews, and storage solutions that amount to little more than filing cabinets – and analysis projects that involve tedious hours spend looking for key terms, a contract management platform streamlines the process, identifying potential risks from the start and making it possible to monitor contract performance more closely.
For example, by using contract management software, your company can avoid wasting money on unnecessary automatic contract renewals. Often, businesses will have automatically renewing contracts, without even realizing it. Unless there is a mechanism in place to notify the correct individuals of a pending renewal, the company runs the risk of losing the opportunity to renegotiate or cancel the contract, resulting in significant expenses. A contract management solution will monitor those key dates, notifying stakeholders as necessary, ensuring those important deadlines aren’t missed.
Additional Areas of Savings
Preventing automatic renewals isn’t the only means of cost savings in your contracts, though. Using the right contract management tools, you can uncover additional savings via things like:
Risk management. With contract management, you can better identify areas of risk that could negatively affect your company. Not only will a robust platform allow you to analyze an individual contract’s risk in terms of its place in your overall portfolio, but also pull out contracts that may be out of compliance with new regulations or laws. These contracts can then be amended as necessary, avoiding costly fines or other problems.
Performance analysis. Contracts are most effective when they include a performance aspect. When the contract specifies deliverables, performance metrics, acceptable quality levels, and have a governance system in place for meeting these expectations, performance monitoring becomes a matter of course – and failing to meet standards can trigger re-negotiation, penalties, or even contract cancellation. Whether you are the buyer or supplier in a particular contract, having these performance metrics spelled out can help keep costs in check and reduce the likelihood of risky or unproductive contracts.
Contract monitoring. Are you using all of the services that you’ve contracted to receive? Are you using more services than expected, or different services, which are changing the costs? Are you incurring penalties unnecessarily, or missing out on incentives? Without contract monitoring, you may not be getting the most from your contracts or losing opportunities that could reduce costs or increase revenues.
Scope expansion. Realizing cost savings on your contracts isn’t only limited to reducing the scope of services. In some cases, expanding the scope of the agreement, or at the very least, lengthening the term of the contract can result in cost reductions. Many vendors will offer discounts for service bundles or extended contracts; you can also save money by outsourcing particular functions rather than maintaining them in-house.
These are just a few of the ways that you may be able to uncover cost-savings within your existing contracts. The most important point to remember is that contracts shouldn’t be signed and forgotten. They need to be managed, consistently monitored and analyzed, to ensure that your business is making the most of them and that you aren’t leaving money on the table.