Contracting is at the core of many B2B relationships and the ability to negotiate and execute contractual agreements is crucial to the success of any business, no matter the size or industry. Contracts don’t simply allow companies to complete tasks on time and on budget; a successful contract is integral to business relationship building, accurate planning and problem-solving, and the long-term growth of a company. The importance of good contract management can never be overstated and today there is an increasing global competition, ever-more complex contractual agreements for rebates are being created.
Effective management and control of complex contractual agreements that include supplier rebates is notoriously difficult. Most standard accounting and purchasing software packages will not cope with the variety and complexity of pricing strategies and rebate agreements. But a solution that is disjointed or based on spreadsheets introduces the possibility of missing data, human error and inaccurate reporting.
Common challenges when managing complex contractual agreements
Complex contractual agreements provide both a challenge and an opportunity for any business. Poor contract management will expose your business to high costs, lack of control and loss of rebate income, leading to poor margins and slow growth. On the other hand, effective management of supplier rebates can result in a wealth of benefits including reduced contract risk and enhanced commercial value.
Here are some common challenges:
- Multiple people involved in the contract management process
Supplier contracts may be negotiated and managed by multiple people across multiple teams within your organisation and within the suppliers’ businesses, leading to risks of confusion, error and discrepancy.
- Responsibility for audit and standards
Many organizations do not have a transparent process and audit trail for supplier contracts and rebate earnings. Meaning that contractual agreements may not always conform to your internal standards and industry standards.
- Monitoring the performance of your contractual agreements
It’s important to make sure that your management team have up-to-date contract performance indicators and are able to monitor your rebate performance against incentive targets efficiently across all supplier contacts.
- Collecting rebate earnings on time
We have found time and time again that companies are missing out on rebate revenue 4% in fact. Make sure to track precisely when rebate earnings are due, and what those earnings should be, so that you can claim them as quickly as possible.
- The shear volume of your contractual agreements
Are you simply overwhelmed by the shear volume of complex contractual agreements your business has in place? Many that keep them filed away in drawers or in folders on their computer are at risk whereas with a contract management system in place, you can find contracts dating back years.
- Financial reporting of rebates
Are you able to calculate, forecast and accrue rebate earnings accurately, reliably and transparently? Are you able to determine the true net-net cost of your products? Are you able to report up-to-date rebate earnings aggregated into your business divisions? Many companies find this a challenge and turn to software for help.
POOR CONTRACT MANAGEMENT WILL EXPOSE YOUR BUSINESS TO HIGH COSTS, LACK OF CONTROL AND LOSS OF REVENUE
In our experience, it is only those well-executed and managed contractual agreements that fulfil the promise of mutually profitable growth for both the distributor and their suppliers.
In order to reach that position, the first step is to develop an effective contract management process.
Who is responsible for managing the complex contractual agreements?
Those involved in managing complex contractual agreements find it is not simply an administrative role; it is strategic, and essential for moving companies toward their business goals. Good contract management personnel work hard for the success of both trading partners in the contract, and contract automation can support them by saving them time, creating greater clarity and consistency, and helping them stay organized and effective.
The procurement team in particular is deeply familiar with the contract terms and is in regular contact with their trading partners. Therefore, they are often in the best position to be aware of any potential changes to the terms of the contractual agreement. Plus they are also responsible for successful relationship building with trading partners, and the in the best position to determine whether the outcome was successful. The procurement team must be both organized and intuitive, as they monitor contractual agreements toward successful completion, while building productive relationships, and performing smart analysis.
To summarise, those who manage the contractual agreements are usually responsible for:
- Ensuring that the terms and conditions of the contract are adhered to
- Ensuring that the contractual obligations are completed satisfactorily
- Ensuring that any necessary changes are correctly documented and managed
- Post-contract analysis and reporting.
So, what are the 7 ways to successfully managing complex contractual agreements?
- Capture contract data systematically — enabling automated processes such as earnings calculations to avoid miscalculations and discrepancies caused by human error, as well as boosting efficiency of process by automatically generating standardised and compliant contract documents from the data.
- Centralize contract control — whilst contractual agreements may be negotiated and managed by multiple people, it’s important to maintain a centralised system across all product lines.
- Collaborate with suppliers online — ensure that a detailed audit trail of your contractual agreement is captured at all times and that both you and your suppliers are in agreement.
- Notifications and workflow — putting contract processes in place to notify you when targets are approaching or when your contractual agreement need to be reviewed or signed off will give you peace of mind that nothing important is being forgotten.
- Automate rebate calculations — automating calculations based on transactions and agreed contractual agreements ensures that visibility of rebate earnings is constantly up-to-date and accurate.
- Identify opportunities and risks — automatic on-going forecasts allow you to manage the uncertainties inherent in targeted rebates.
- Implement robust reporting of forecasts, accruals and actuals – make sure that your system can report up-to-date rebate earnings and forecasts by supplier, by time, by product line, by division, and so on.
These steps will ensure you find it a lot easier to manage contractual agreements, track rebate earnings, minimise the risk of loss of data or human error, and maximise deal profitability.
What system can help me manage my complex contractual agreements?
There are a number of solutions that assist businesses in managing complex contractual agreements. Each has their own focus, but if many of your contractual agreements include rebates or retrospective discounts, then you probably need to look for a rebate management system that is integrated with your other enterprise systems.
At Enable our goal is to make sure that all finance and procurement teams have the rebate management tools they need to see every contractual agreement through to a successful outcome, no matter what their needs are.