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An accounts payable audit generates a lot of buzz in an office. The expectation, of course, is that thousands of dollars will be recovered as operational systems are combed for oversights. Even a cursory automated audit can find large overpayments. Digging into the files, however, often reveals errors in Contract Compliance that return even larger sums of money to the business over time. A comprehensive accounts payable audit will utilize automated systems as well as a manual review. That manual review is sometimes the only time contracts are revisited and matched up with actual transactions. After conducting the audit, the auditor should recommend best practices in contract compliance that don’t allow these clearly defined terms to fade over time. If you walk away from an audit without an improved compliance procedure, you have missed a huge opportunity. According to Aberdeen Research, best-in-class organizations achieve up to 80% more savings than others through a clearly defined contract compliance process. Broniec Associates reports finding money associated with invoice errors as large as seven figures. Together, that’s huge! Best practices vary, depending upon the type of business you are in. In basic terms, however, there are some common operational elements to consider. 1 - Central Repository The key to an effective contract management program is having a central repository for holding contracts. Yet, the Aberdeen Research report found that only about half of all organizations take this step. With no contract repository, contracts with terms that could have been renegotiated are often just sucked into auto-renewal, costing companies dearly. 2- Communication and Management of Metrics Automation certainly has its place in contract compliance, but it does not take the place of an efficient human side to the equation. Inputting a system of alerts and reminders for critical clauses is a simple yet highly effective way to keep track of savings opportunities. 3 - Contract Audits Periodic contract audits are essential. A company must be constantly aware of contract terms. An audit will shine light on: • Currency Change and Conversion • Cost Amortization • Volume Discounts • Buyer Turnover • Clerical Errors 4 - Standardized Contract Template It is pretty easy to see how a standardized template could make contracts much simpler to decipher. Not only does the standardized language aid understanding, but it also cuts down significantly on contract preparation time. Contract authoring delays are typical, drawing out negotiations much longer than necessary. And, time is money. Of course, these templates must be kept up-to-date with industry requirements. 5 - The Missing Link Collaboration by all of the stakeholders in contract negotiations is often bypassed for convenience. Setting up a collaborative process from the beginning, however, can streamline future amendments and approvals. If at all possible, this is a step that should not be skipped. Keeping these things in mind, you should be able to work with your auditor to achieve greater contract compliance and save your company a significant amount of money going forward.
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