There’s a contract behind every single dollar in and out of your company. As CFO, your biggest interest lies in the outcomes of the contracting process, even if you’re not always directly involved. Contracts inform important financial and risk management decisions that fall upon the CFO’s office. Consequently, CFOs need prompt and direct access to critical contract data.
That’s where quality CLM software comes in, providing actionable contract intelligence to CFOs to help them mitigate risks, reduce costs, gain visibility over cash flow, and make informed decisions based on accurate insights.
Whether you're looking to create a business case to get your CFO's buy-in for a new CLM tool or are a CFO yourself, this guide will take you through how a CLM can help in financial planning, forecasting, reporting, and more.
What CFOs need
According to the 2022 PwC Pulse Survey, rising costs are urging CFOs to revisit pricing strategies and look towards digital transformation to automate processes, offset costs, and increase efficiency. 48% of those surveyed prioritized accelerating digital transformation to achieve standardization and automation as the way to move forward.
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The CFO’s office is driven by accurate data that allows for proactive financial planning and forecasting. A highly underutilized source of this finance data are contracts, which govern the day-to-day operations of a business. Some questions that might come to mind when making financial decisions include:
- What is the value of total sell-side contracts?
- How does that contrast against the buy-side contracts?
- Which contracts are due for renewal or expiry? And which of them do we need to keep?
- How long does it take to close contracts?
- Are the current processes efficient, or is there room for automation and improvement?
Obtaining contract intelligence is an excellent way to answer these questions. And while obtaining this data might have used to be a full day or two’s work for your team, a good contract lifecycle management platform can help you do this in seconds.
But before we go into that, let’s first establish what we mean when we say “contract intelligence”.
Also read: 8 Top Contract Management Software Platforms
What is contract intelligence?
In simplified terms, contract intelligence refers to accurate data and insights derived from contracts by AI tools to help inform financial decisions and planning.
Contract intelligence goes beyond manual contract analysis, enabling error-free reporting and visibility over key contract data to provide finance teams and CFOs with a clear understanding of where the company stands. This helps avoid the pitfalls of manual contract analysis and reporting, which is often ridden with human error, long turnaround times, lack of efficiency, risk exposure, and more.
Data pulled from contracts can be a key indicator of the overall financial health of a company. For example, contract data reveals important information about costs, revenue, risks, and potential opportunities for the business.
Kaitlynn Sommers, Senior Principal Analyst at Gartner, wrote in their Market Guide to Contract Life Cycle Management: “CLM solutions are evolving from operational record-keeping systems used for legal auditing purposes into enterprise-level core systems for addressing business risks, costs, and the pursuit of revenue maximization.”
“SpotDraft's reporting capabilities are very helpful for showing data around contract lifecycles, turnaround times, bottlenecks, and more.”
— Nicolette Nowak, Associate General Counsel, Beamery.
How contract management systems and reporting can aid CFOs
The bottom-line question for CFOs is: Will investing in contract management software bring me a decent return on investment? There are many benefits that good CLM software and CLM-enabled contract intelligence bring to the table, such as those listed below:
Maximize revenue by providing visibility over key aspects of business
A core responsibility of CLM software is to help accelerate contract velocity while improving cash flow and streamlining the onboarding process for suppliers or partners. An optimized contract lifecycle leads to a more efficient time-to-value ratio and improved topline revenue. A CLM allows CFOs to visualize how much revenue is tied up and look for ways to improve velocity.
In another example, supply-side contracts hold important information that can determine the cash flow of the business, and visibility over these details is critical for CFOs.
Among the information CFOs need at their disposal is a clear understanding of guaranteed cash outflow versus probable cash outflow. Contracts with an opt-out fall under the probable category, whereas contracts with no opt-out fall under guarantee cash outflow. Clear visibility, including knowing when contracts come up for auto-renewal, helps CFOs to proactively make changes based on their cash position.
Minimize risks and ensure compliance with conditional triggers and staying audit-ready
Contract risks can be a threat to an organization’s revenue. A good CLM helps keep more money with the company by helping mitigate contract risks. From the CFO’s seat, minimizing contract risk makes sense in terms of maximizing company revenue, but that’s also balanced with the need to maintain efficiency across the contract lifecycle and ensure your repository is audit-ready.
A CLM provides an agile system that ensures up-to-date compliance with regulations while maintaining an efficient process. Compliance and efficiency don’t have to be mutually exclusive; it’s possible to have both and still minimize risks.
By staying in the loop, CFOs can minimize risks of defaulting on key vendor payments or late fines and penalties. They can ensure smooth operations by proactively managing suppliers and client contracts in advance.
Additionally, CFOs must have visibility and control over any unusual expenses in the firm while also protecting their time so they don’t have to approve every single penny that goes in and out of the company. With a CLM like SpotDraft, you can set conditional approvals that get triggered when the contract value exceeds a certain amount or any other special conditions are met.
Automate processes to improve efficiency and redirect resources where they’re more needed
CFOs put a lot of focus into optimizing top and bottom-line performance. Automation can play a pivotal role in optimization as it allows for extra efficiencies in the contract lifecycle. A CLM is useful for automating processes such as:
- Approval and signature processes: A CLM can virtually shoulder-tap the person who needs to give approval, helping to eliminate bottlenecks and improve productivity.
- Reports and dashboards: It is a best practice of contract management to set up automated reports and dashboards so that information is quick and easy to find.
- Reminders: Many CLMs provide automated prompts to help avoid missed deadlines or milestones, or fall prey to automated renewals.
- Validating invoices: A CLM reduces scope of human error and helps validate finance data with contract data and values.
- Data reconciliation for auditing purposes: Reports and analyses that would take a fair amount of time to gather manually can be generated within seconds with a CLM.
- Integrate finance tools: If your chosen CLM also offers integrations, you can directly integrate tools like Salesforce to automate processes that otherwise require a lot of manual work from your team.
“The templating and approval features are a lifesaver. We would underbill and need to rebill because the data was all over the place. Now, with SpotDraft, it's all in one place, saving us a lot of time and eliminating errors.”
— Capterra Reviewer
Make your organization remote work-ready
Post the pandemic, business has moved to a more hybrid and even fully-remote environment for many companies. This has a lot of implications for financial strategy, and CFOs now have the task of figuring out how to allocate resources toward in-office and remote infrastructure.
With remote work comes the necessity of automation and communication tools to help teams collaborate efficiently. A CLM doesn’t enable just the legal team; it also paves the way for greater harmony with and between procurement, sales, finance, HR, and other business teams.
Make data-informed financial decisions to increase incoming and control outgoing cash flow
Transparent CLM data helps finance teams to improve the quality of their financial decisions. With a dynamic CLM like SpotDraft, the finance team can:
- Project out outgoing expenses in real time.
- Understand the milestones needed for payments.
- Understand why exactly certain non-standard payment terms were agreed to by reading through the contract notes.
- Get crystal clear clarity on what contracts have auto-renewal clauses along with the required notice period to prevent auto-renewals.
- Quickly go back and get context on what makes certain clauses viable by going through the tamper-proof audit log associated with the contract.
- Set up controls to mandate finance approvals triggered by non-standard inputs.
Visualize data with reports and dashboards to improve the accuracy of forecasts
A quality CLM comes with tools and dashboards to derive actionable insights. For example, with SpotInsights, CFOs can instantly create intuitive visual dashboards to understand what the team is working on, measure productivity, weigh actual numbers against projections, and use this data to optimize processes.
These reports and dashboards also help make cash flow and risk forecasts more accurate, projecting how much money is likely to come in via sales contracts and how much needs to be paid out to various vendors in the next few months.
Negotiate effectively by understanding what helps in closing deals
Which contract terms or clauses can help to win deals more quickly? This is where the data transparency of a quality CLM can help. CFOs can identify trends and analyze historical negotiation data to inform their current negotiations.
On the flip side, CFOs can also spot trends in contract terms that may hinder negotiations. CLM data can illuminate the terms to eliminate from future contract negotiations in order to speed up the process.
Leverage contract data reporting to boost financial performance with a CLM
CLMs play an important role in helping organizations to be digitally agile. For CFOs, this means efficient access to key contract data, allowing for more effective decision-making.
This agility helps organizations gain a competitive advantage by streamlining contract lifecycles, maintaining both speed and compliance, and improving topline revenue while managing risks and enabling accurate reporting.
When CFOs can easily monitor contract KPIs, they have better information for making proactive decisions. They’re able to hold team members accountable more easily and parlay that accountability into improved results.
If you’d like to optimize cash flow and leverage contract intelligence with an all-in-one CLM, SpotDraft might be the right choice for you. Book a demo with us here to find out how.
