If your team is responsible for managing your corporate agreements, you must develop an understanding of what various company leaders and stakeholders (including your CFO) care about in the contract management process.
Chief financial officers rely on contract data to help evaluate how the company is performing, set growth goals, create financial projections, and understand where the business might be at risk. Anyone responsible for managing agreements needs to be able to provide your CFO with accurate, timely contract information, so they have visibility into things like contract expenses, revenue, and more.
But what specific concerns do CFOs have when it comes to contract management?
This article reviews four things CFOs expect from an effective contract management process.
Tracking costs associated with buy-side contracts
Just as you would expect, CFOs are going to be primarily concerned with the financial impact of each contract your company executes. One example of something CFOs care about from a financial angle is the expenses represented in your buy-side contracts.
If your team is responsible for managing your company’s buy-side agreements, you have undoubtedly had to field questions about the contracts related to the various goods and services your business needs to operate, and whether there are opportunities to reduce those costs, either through negotiation or by finding more affordable vendors.
It’s imperative that you closely monitor and track your buy-side contracts so you can not only respond to these inquiries as quickly as possible, but also put your team in a position to reduce spending, or even eliminate expenses from agreements that are no longer serving the needs of your business. Your CFO also needs to know everything about the company’s contract costs to create accurate financial projections that help determine the health of the business.
Tracking upcoming revenue within their sell-side contracts
CFOs are very interested in tracking contract expenses, but they also want to maintain a solid understanding of the expected revenue outlined in your sell-side contracts.
In addition to keeping up with and reporting on upcoming revenue, contract managers should also bring up any issues that have surfaced during the life of the contract that might impact projected revenue. For example, if one of your customers isn’t satisfied with the service your company provided and is in the process of renegotiating or restructuring their agreement, your CFO needs to know that the original contract value may not be the final amount collected.
Providing the most accurate picture of your company’s contract revenue and expenses will give your CFO the information they need during the budgeting and forecasting process.
Preparing for audits The contract management team and CFOs both clearly have important roles to play anytime a business is preparing for an upcoming audit. When outside auditors are brought in to evaluate a company’s performance, whether it’s related to finances or compliance, a wide variety of corporate documents and contracts must get compiled for review.
To prepare for the audit, your CFO will likely ask for a list of contracts that are needed to demonstrate compliance with industry regulations, or provide data to backup financial reporting and projections. That means that contract managers must have a way to easily produce this information in a timely manner. Especially when you know an audit is approaching, make sure all of your important corporate agreements are stored in one central, easily accessible location.
Staying ahead of end dates so they understand the business impact
Another factor CFOs consider when evaluating the financial health of the company is contract end dates. In addition to contract expenses and revenue, CFOs also need to understand other details about your contracts, including:
- When do various contracts expire?
- Are a large portion of your contracts set to expire at or around the same time?
- For expiring buy-side contracts, are new agreements needed to replace those services?
- For expiring sell-side contracts, how will revenue be impacted once those accounts churn?
- Is there a strategy laid out for replacing some of those expiring contracts to keep revenue steady?
- Are any of the expiring contracts expected to be renewed or renegotiated?
Input from other departments is needed to answer some of these questions, but the more information the contract management team can provide to your CFO the better.
For more on ensuring your team has a comprehensive contract management process in place, download The Master Checklist for Contract Review & Management, a free resource from ContractWorks.
Some of this content was previously published on the ContractWorks blog.