As a result of the ongoing uncertainty, businesses must consider ways to minimize expenses while increasing profitability. One of the most important ways to accomplish this is through excellent contract management. In this post, we will look at how automation can reduce administrative costs through better contract management.
Vendor contracts are likely to come to mind when you think of a business contract. While vendor contracts account for the majority of contracts in a company, numerous additional types should not be overlooked, including customer contracts, HR contracts, and lease agreements.
Effective contract management in each of these areas can have a significant impact on cost reduction and profitability.
According to KPMG,
“the ability to systematically manage contract formation, execution, and analysis is critical to risk management, financial performance, and operational efficiency.”
However, if you have an integrated contract management solution in place, you can’t obtain control over your contracts and hence unlock profitability in your firm.
How automation can reduce administrative costs through better contract management
To properly control spending and cash flow and cut expenses, each component of a contract’s lifespan must be tightly managed.
You face many position risks if you do not have control and insight over your contracts.
You may, for example, miss critical deadlines, be uninformed of auto-renewals, be vulnerable to supplier non-compliance, be unaware of important contract T&Cs, or even fall short on contract compliance. All of these factors might have a significant impact on profitability.
You risk missing critical contract deadlines and renewals if you don’t have control and insight over your contracts.
In the case of vendor contracts, this could imply that a contract is automatically renewed before you have had the opportunity to renegotiate terms that would allow you to increase cash flow.
Alternatively, you could commit yourself to a vendor who has consistently failed to meet their contractual duties.
If a customer contract expires without your awareness, you may end up missing significant revenue that could have had a significant impact on your company’s future profitability.
Depending on the magnitude of the contract, you may be forced to fill the void soon.
Beyond cost savings, automation also reduces the administrative burden on legal and procurement teams, allowing them to focus on more strategic tasks. Manual contract management often requires significant time spent on drafting, reviewing, and tracking agreements, which can slow down business operations and increase labor costs. By automating routine processes such as contract creation, approvals, and compliance checks, organizations can streamline workflows and ensure consistency across agreements. This not only enhances efficiency but also minimizes the risk of human error, which can lead to costly disputes or missed opportunities.
Automated contracts can contribute to your company’s profitability.
Many employment contracts, for example, would include an initial probation or review period, after which terms will change.
Without visibility into forthcoming deadlines like these, you risk wrongly predicting overhead costs for the following months or missing out on an opportunity to review staff performance.
With contract expirations and renewals being a typical source of revenue leakage, it’s easy to see why “increased ability to manage contract renewals” was named the top benefit of contract management systems in a recent Levvel Research survey.
You can establish precise dates against contracts when they are created using a contract management system. This ensures that you are notified in advance of forthcoming renewals and expirations.
Even if you do not specify particular reminder dates, the system will send you reminders at pre-determined intervals, ensuring that you never lose valuable client money unexpectedly, are tied down to undesired vendor contracts, or miss out on the opportunity to re-negotiate contracts.
Contracts contain a substantial quantity of personal data, so this data must be managed in a compliant manner. The costs of not maintaining data in a compliant manner might be substantial.
Contract management solutions like Trakti automate the management of this data to ensure you remain compliant. A contract management system with advanced reporting capabilities evaluates all areas of contract cost and allows you to adjust your strategies to maximize profitability.
As mentioned previously, control and visibility over contracts is key to unlocking profitability. This is one of the ways how automation can reduce administrative costs through better contract management.
