This article originally appeared in Fintech Weekly.
Once upon a time, CFOs were considered a roadblock to innovation and digital transformation. Now they’re expected to be business leaders. And they should be.
The role of the CFO must expand beyond managing spreadsheets and running the trains on time. Today’s effective CFOs are making real contributions to business strategy and serving as proactive advisors to the C-Suite.
And these days, to be an optimal CFO you need the correct digital tools. This is why automation and digital transformation is so vital — and now so widely embraced. A recent survey of more than 300 CFOs and financial leaders showed that 69 percent plan to increase their investment in digital technologies to stay competitive in the market. This new way of thinking is spurred not only by the desire to improve operational performance and reduce costs but also by the absolute need for finance to drive strategic opportunities and innovation.
One area of intense focus here is contract management. CFOs control everything the business buys and sells. And what is the one single process that underlies every aspect of this buying and selling? It’s the business contract. The contract is how a company secures harmony and agreement between itself and its partners, customers, and even its employees.
Yet contracts remain one of the last manual processes in the organization. Nearly every other process has already been or is on the way to being automated. Yet, when it comes to contracts, the process is still fragmented and manual.
Increased speed and efficiency through digital contract management
It’s time to change this. The manual nature of contracts is a bottleneck to innovation, making it hard for finance teams — and the organization as a whole — to keep up with the demanding pace of business in today’s digital landscape.
Many companies have already deployed contract management tools. But, for the most part, these are used simply for storing contracts. Innovative companies, on the other hand, understand that a powerful contract management solution can fundamentally change the way they do business — and innovative CFOs are taking full advantage of these solutions.
For example, digital contract management can automate the flow of money as it enters and leaves the organization, thus providing CFOs with faster time to revenue, increased scalability, automated compliance, and greater agility.
As a result, CFOs at fast-growth organizations are better able to manage toward major events such as an IPO or an acquisition. Meanwhile, CFOs at larger, more established companies are in a better position to capitalize on new opportunities or fend off emerging challengers. If you are the CFO of Gillette and your business can’t react to a newcomer like Harry’s Razors, then you aren’t doing your job leading the business.
The bottom line is that if your business is not fully digitized you can’t react effectively to change. No matter how much you invest in other areas of the business, all that means nothing if the one process underlying it all — contract management — is still manual.
By automating contract processes, CFOs can increase efficiency. They can work smarter, not harder, and gain more time in their day. They can also to do more with less, while still focusing on strategic, value-added tasks.
Added transparency and foresight
Take, for instance, contracts with customers. CFOs need to know who their current customers are and whether they’re coming up for renewal in the coming weeks or months. Having contracts in one central repository makes it easy for them to do this, with insight to an entire contract portfolio.
By automating contract management, CFOs can gain a clear understanding of all contracts and where they stand at every stage of the negotiation process. That kind of visibility is essential for forecasting the close of news deals and knowing when revenue can be recognized. CFOs can then quickly run analysis to ensure contractual obligations are met, identify duplicate purchases, find opportunities to secure better pricing, and even review terms and conditions, including payment terms.
Without this kind of contract automation, companies can be caught flat-footed, because they don’t have proper visibility into the customer. Not understanding who is up for renewal and when can lead to greater customer churn. Then revenue you thought was guaranteed suddenly disappears.
That’s bad news for CFOs on every front. Forecasting suddenly becomes unreliable and, worst case, the company completely misses its numbers at the last minute. The board goes ballistic, the management team is put on the defensive and investors lose trust in the company to execute.
The good news is that business contracts are being transformed by digitization and this transformation is making it easier than ever for CFOs to effectively manage contracts. One clear benefit is greater collaboration across the entire organization because there is a single point of contact for all contracts, which means that everyone is on the same page.
For instance, legal, finance, procurement, sales and HR can now use contract management technology to build strategic relationships and achieve greater contract collaboration. By moving from manual to automated processes, organizations can standardize their workflows, reduce administrative work, increase responsiveness and improve negotiation.
Let’s say, for example, the sales department has just offered employment contracts to 10 potential new employees. If everyone is on the same platform, the finance team now has the ability to see what offer letters are going out, whether the potential employees are actually signing them and, if they are, what their start dates are. As a result, finance can get a better picture of those new salaries and how they’ll impact cash flow. It can then advise the sales team that it’s extending too many offers, not enough or just the right number — whatever the case may be. This improved transparency across the business means that HR, finance and sales can all be in synch.
Leverage the potential of contracts — with data
Going forward, contract automation will also involve AI and machine learning and this will help teams do their jobs even better because they can offload manual tasks and focus on strategic initiatives. But the first step is having all your contracts centrally located and digitized, otherwise machine learning will be useless to your business.
If you want to leverage machine learning, yet you only digitize a small subsets of all your contracts, you’ll likely end up very disappointed. Why? Because that’s like hiring a lawyer to defend you in court and only giving him ten percent of the facts. There’s no way you’re going to win that case.
Done right, however, machine learning could enable CFOs to quickly answer historical questions or extract key dates and opt-out clauses from a particular contract, thus removing a lot of manual work from contracts. CFOs could also look for patterns across all their contracts and uncover key insights. For instance, you could quickly discover that you are paying a particular supplier above industry norms. With this kind of data at your fingertips, you can go back to that vendor and renegotiate more favorable terms.
CFOs today have to operate more moving parts than ever. They have to be enablers of digital transformation, not disablers. That’s why automation is critical. By automating the once-manual process of contract management, CFOs can help drive better decision-making and greater innovation throughout their organizations.