What Controls When You Get Paid?

Fourth quarter bonus question for all you financial types….

“If you get paid in 60 days vs. 75, is this a good thing?”

Yes. Yes it is.

Now I suppose there’ll be some tax accounting genius who may have an argument against that but, we’re willing to bet they are one in a million.

Not being paid on time is a problem. The reasons for it can be numerous. There certainly are a few things out of your control —  maybe your client is having financial troubles or some unforeseen event like a Nor’easter snowstorm is delaying things. But, let’s talk about the things that are within your control. Focusing here first is the quickest way to improving your days outstanding.

We’re going to give you an interesting scenario that actually happened with one of our clients (yes, everything’s been changed to protect their privacy). What happened with them was totally within their control but, like most companies, they were not set up to communicate seamlessly between divisions and so they couldn’t see it coming. And they became aware of it only after it cost them a lot of time and money.

Sales guys. We love them. They are the reason we’re in business — nothing happens until somebody makes a sale! Their creativity can lead to inspiration as well as perspiration. In our client’s case, they were selling a very complicated group of solutions. The solution grouping itself had no name because it wasn’t a product itself. The sales folks saw how much confusion this was causing with the client and gave it a name.  They called this grouping the Zeno Trust XL, named after the client, Zeno.

Makes sense. Great idea. Excellent move to help the client and save the sale.

Contracts are written and signed. The Zeno Trust XL is delivered on time and everyone is happy. Well, until they get a call from the accounting department.

It’s been over 75 days and accounting is calling the Zeno Company to find out why they haven’t been paid. Hummm. The Zeno accountants don’t have a contract for the invoice in question.

Why?

Because the invoice from our client to Zeno Company is an invoice listing all the various components of the Zeno Trust XL grouping.  When our client created the invoice, there was no Zeno Trust XL product to choose from so they could only select each item individually from the product database.

Now, the Zeno Company does have a contract that says they will pay for a Zeno Trust XL, but, they have no invoice for a Zeno Trust XL. They dismiss the invoice because it matches nothing in their system.

So, this one teensy little act of creating a name for a group of products costs our client 30 days in receivables and who knows how much in man hours tracking down what happened.

Oh, by the way, this incident happened before they became our client and was one of the catalysts that led them to us and a better way to manage their contract process.

Of course it’s easy to say — “we have a rule in our company that says…if it’s not in our product database, you can’t sell it” — and think all will be okay. But, if your system allows a contract to be written with a product name that doesn’t exist in your accounting system, then you’ve lost control. And, a stated rule like that is surly open to interpretation. I’m sure the sales folks will argue that everything they sold was in the product database.  And it was!

When you can tie your intentions and rules to your contract process, then you have control.

Today, our client’s scenario would be quite different. The Matrix Enterprise System would not allow a contract to be written using a product name that didn’t exist. And, if the sales person tried to do this, it would ask a series of questions to determine the intent. Alerts would go out to appropriate parties who would then help the sales person in crafting the contract language so that everyone (accounting, the client, the sales team, the financial team) understands exactly what’s happening. Plus, their contract management system will be updated and will actually learn from this scenario, becoming completely prepared should the occurrence happen again.

Control. It’s a beautiful thing.

If you’d like to find out more about the positive power of contract control, join us on the third Thursday of every month for a Matrix Software product website demonstration. Click here to RSVP. There is no cost or obligation to you. We just want you to Harness the Power!

The Sweet Process of Success!

When Henry Ford became a zillionaire making cars, was he the first auto manufacturer? When Ray Krock created McDonald’s was theirs the first restaurant? Was Starbucks the first coffee house in America?

No.

But, what they did do, is still being done (and can be done) by the most successful companies in the world.

What each of these companies did was to create, then perfect a system. Henry Ford was still making cars one-by-one until he happened to walk into a meat company and saw all those cows hanging on an assembly line with each butcher working on a different part. And, McDonald’s isn’t in the food business per se.  They are in the convenience, entertainment and real estate business. Starbucks ran a few small coffee shops for years before they perfected their system and became an “overnight” success.

The simple truth is, once you know how something works, you can pretty much duplicate, test and perfect it. It’s as true for hamburgers as it is for contracts.

The challenge with contracts is that they tend to take on a life of their own and necessitate the involvement of a lot of people. Even if you run the biggest company in the world, you know intuitively that if you get 10 people involved in making one hamburger, it’s likely to take longer and be far more complicated than zipping over to the McDonalds near you (and we’d be willing to bet, there’s one near you!).

As someone responsible for the results and compliance of your company, you may hear a lot about the standardization, streamlining and automation of the contract management process, but…what about the underlying policies and procedures that govern the business rules for that process? This is where the whole thing gets, well, messy.

How do you manage all the policies… all the rules… and the procedures?

The key is to take it one step further and automate the workflows and approvals of the business rules than govern your legal and financial risks. Create a dynamic and collaborative process around the following:

• Enter business rules.
• Define workflow processes.
• Create documents based on information obtained from a series of questions asked in an interview process.
• Determine who can see the information.
• Determine who must approve what in the process.
• Define what reports need to be generated.
• Create checks and balances along the way to there are no surprises.

And there you have it. A fully automated, policy-centric contract life cycle management tool that will save you hours and hours of time, a couple terabytes of emails, several hundred forests, boat loads of money, and years of aging.

If you’d like to find out more about enhancing your empire, join us on the third Thursday of every month for a Model-T website demonstration. Click here to RSVP. There is no cost or obligation to you. We just want you to Harness the Power!

Append or Not To Append?

Someone once said (heck, it was probably me after one of those painful learning experiences), “all disappointment comes from miscommunication.”

That’s true whether we’re in a “he said, she said” or “this one or that one?” situation. When thing’s aren’t crystal clear, disappointment and problems can surface.

Businesses that have long standing relationships with companies have some very tricky nuances when it comes to contractual relationships and ever-challenging master contracts vs. appendices.

Let’s take the case of software. You develop the software your client uses. You have a master contract license with them. Because you’re an exceptional service provider, you’re continuously improving your software. And, because this particular client owns a lot of your product, you’re anxious to let them know about the new beta version and see if they want to participate. And, of course they do!

Here, depending on what systems and rules you have in place, you may or may not append the original software license agreement to use the beta code.  And, since they’re such a good and long term client, it’s not that big a deal. Well, until something happens.

Your beta version causes a teensy little glitch that causes them to miss a deadline with their client and they get sued. Humm… Those pesky unintended consequences again!

Now, of course you told them not to deploy the beta version in production!! After all, it is BETA. You definitely mentioned that you knew there would be bugs. And, as soon as you found out about the teensy little glitch, you fixed it immediately. You did everything right. Well, except append the master contract to protect yourself.

Amendments are hard. Is the entire master contract superseded or just part? Does this amendment supersede the previous amendment? What’s the jurisdiction?

Process oriented software that reduces the human side of contract creation and revision can go a long way to providing clear communication.

Imagine an amendment process where you click the amend box, and up pops a series of questions which will determine the intent of the amendment. Then, once it knows your intent, a series of approved clauses appears for you to choose from. All appropriate parties are notified that the master contract has been amended or superseded. And, everyone sleeps better at night.

Think of all the disappointment you’ll avoid on the off chance… something goes wrong. Think of all the time and money you’ll save by not having to go back and read through the various contracts and amendments.

If you’d like to see the industry’s best “disappointment avoiding, champion of governance” software in action, join us on the third Thursday of every month for a crystal clear website demonstration. Click here to RSVP. There is no cost or obligation to you. We just want you to Harness the Power!

Turkey Management

Okay, it’s Thanksgiving. For most Americans that means a whole lot of work shopping, cleaning, cooking, managing guests, more cleaning and leftovers. Oh, and for some diehards, it also means an insane shopping trip after all that. Fascinating how customs are created.

Thanksgiving gives us a good opportunity to have some fun with contract management. The process that goes into creating your Thanksgiving dinner really isn’t that different than the process of contract negotiation and managing the associated rights and obligations. There are some things that are non-negotiable — the turkey, the stuffing, the homemade pumpkin pie. Then there are certain items (clauses) that can be appended to the menu — Aunt Betty’s green pea, Jello and mayo salad for instance. There is also the process of letting everyone know about the entire event — “Dear family, this year we have invited Aunt Betty. She’s getting on in years so let’s all be very gracious and patient. Oh, and, she’s bringing her green pea salad …AND, you all must – yes, I said MUST, take some on your plate an manage to eat it or get it off your plate without her thinking that you did anything other than eat it. Understood? No exceptions.

The transparency of this communication to your family is clear. No one is going to be surprised when Aunt Betty shows up with the salad and no one is going to have to guess at what to do when the salad is handed to them. Just like mom, the finance and legal departments really love transparency and no excuses.

But, a well-managed CLM system has many other benefits too. The single repository and information management tools will save you an incredible amount of time and money. It could even help you on Turkey day. Let’s suppose you it’s your family’s turn to host the Thanksgiving Dinner. The bad news is  — you have a large family. The good news is — you only have to host it once every five years. And, the best news — with the right information, it will be smooth sailing.

With your “Turkey Lifecycle Management System” in hand, all you’ll have to do is go back in time (a simple query of the repository) and find out what you did five years ago, check to see if anything is dramatically different and then execute a fabulous and stress free dinner.  All the information will be there: who should not be sitting next to whom, what food allergies you’ll have to plan for, who should not be in charge of the holiday toast, who should be in charge of the dishes, what topics of conversation must be avoided at all costs. You’ll have every email, every non-negotiable item, every exception to the rule, everything you could ever need to know about that event five years earlier.

And there you have it — your Thanksgiving Day all tightly managed and ready for years and years of effective gatherings.

We are very thankful for all the wonderful things we have in our lives and our business. Thankful for you and all our clients, our suppliers and employees. We are thankful for our freedom and the abundance of this county. We wish you and your family a beautiful Thanksgiving Day.

On the third Thursday of every month, we demonstrate exactly how one of the most powerful contract lifecycle management tools work. If you’d like to join us, please click here and sign up. There is no cost or obligation to you. We just want you to harness the power!

Can You Collect What You’ve Negotiated?

This is really a customer service issue, isn’t it?

Think about it. You have a contract with a customer. Regardless of how complex that contract is, it all boils down to — if you do this, then I’ll do that. If you deliver what you said you would deliver…I will pay you.

But, what if you have something in that contract that’s just a tad bit out of the ordinary. What if, in order to make that particular client happy (and sign on the dotted line), you had to offer some special incentive or some tweak to the standard contract language relating to “system fully implemented and working.”

Ah, the impact of unintended consequences.

The problem is, changing the wording on a standard contract clause can cause a host of issues no one ever thought of. This is because ambiguity leads to interpretation — and no two humans are likely to interpret the transaction in the same way. Sales translates the clause one way, finance another and the product delivery team — well, they probably are not even aware of it.

And, this is where the real problems begin. Why? Because this is where the client can get disappointed. And where a lot of confusion sets in with the accounting departments from both companies — neither of whom were involved in the original negotiation or have any comprehension of what was meant by “system fully implemented and working,” so they are very limited in their ability to resolve the issue.

Now, we like humans. We really do. They are interesting and dynamic and full of surprises. But, humans can be a considerable liability when it comes to effective contract management. When it comes to collecting what you’ve sold, the less human interpretation, the better. When we can significantly reduce the human characteristics of ambiguity, individual interpretation and he-said-she-said regarding contractual terms, life gets much easier for corporations — and, other humans. It’s an odd cycle.

Forget the risk and liability benefits that a fully automated and transparent contract lifecycle management system will provide. That’s just icing on the cake.

It’s the customer service aspect this kind of system gives you that will make you giddy. In the example above, if you have a fully automated contract lifecycle management system and in order to get the sale, you had to tweak the delivery language, then yes — everyone in the system will know about it and will have had to approve it before it actually made it to the signature table. That eases the minds of all the compliance people in the room. But, here’s the beauty of this scenario — we can also include the product delivery people in the process. This means that they too are aware of the special circumstances surrounding the deliverables and they can now be proactive and deliver exactly what is meant by all when the contract says, “system fully implemented and working.”

So, in one strategic move, we eliminate ambiguity, financial risk to the company, and the unhappiness of a client. All in a days work!

On the third Thursday of every month, we demonstrate exactly how one of the most powerful contract lifecycle management tools work. If you’d like to join us, please click here and sign up. There is no cost or obligation to you. We just want you to harness the power!

It Counts. No, it doesn’t.

For years we’ve been hearing about the day when every product will contain a microchip that disseminates information. And, for the most part, that day has come. There are microchips in our cars and tires to alert us about potential problems, there are microchips in our phones, elevators, doors, etc. And, it looks like this trend is about to get a boost. Xerox just announced a big breakthrough in its “printable electronics” technology.

Like our Easy Tags, this technology will allow RFID tags on every box of cereal, every frozen food package, and every can in a supermarket. So now all we’ll have to do is walk past the cash register to check out. And, our refrigerators will probably be able to produce a grocery list in real time — just before we run out of things.

This type of “smart tracking” is also pretty useful in the workplace. Now, we might not care so much about keeping track of every pencil and paperclip, but, it comes in very handy when you want to track things like revenue and risk.

Think about the contract process for many companies…A contract gets initiated and there are typically a few adjustments to be made along the way. The client wants just a little extra added. The salesperson needs authorization in order to accommodate the request. He emails his boss who realizes he has to get approval from the product team. The boss emails the head of the product team who is busy and can’t get right back to him. Several days and numerous emails later, the boss picks up the phone, the product guy agrees the addition is okay, the contract is adjusted and the sale is finalized.

The quarter is ending and everyone is happy that the quota has been made. Like kids waiting for Christmas morning, the sales team eagerly awaits their pats on the back.

But, the sales team didn’t make quota. Turns out the finance team wouldn’t allow that transaction to be recognized. There was no documented evidence the chain of command followed corporate policy.

So, instead of a team of happy campers, we have a wee bit of dissention between sales and compliance.

The sale guys are right — the revenue should count. They got the necessary approvals.

The finance guys are right — the revenue shouldn’t count. They have no proof that required approvals were granted and without out that there’s the risk of material weakness in corporate policy. Something that will send a cold chill down the spine of the analysts community.

Why can’t we create “smart contracts?” Why can’t we apply some sort of RFID tag to every transaction so we can get better visibility into what is happening? It would certainly beat submitting every email and recording each conversation that involved a contract.

The good news is, that this RFID concept does exist for contracts, maybe not in the same way it works for cereal boxes, but automated workflow rules and notifications create smart contracts and smart processes — eliminating unstructured, untraceable conversations.

As approvals are needed, they are logged into the system. An email alert goes out to the person who needs to take action. Rules can be set up to escalate the process too. If Person A misses the deadline to respond, the authorization request is automatically sent to Person B. Rules and corporate governance are built right into the system so no one has to ponder what’s acceptable, no one has to wait longer than necessary, no one has to be disappointed the sale didn’t go through and no one has to go to jail or answer to an angry public.

On the third Thursday of every month, we demonstrate exactly how one of the most powerful contract lifecycle management tools work. If you’d like to join us, please click here and sign up. There is no cost or obligation to you. We just want you to harness the power!

Who Bears The Risk When Things Go Wrong?

Insurance. One of those things that you don’t really pay that much attention to….until you need it! Then, that fine print becomes pretty darn important.

Contract clauses can be a lot like insurance. Sales people do what they need to do to get the sale, managers do their best to straddle the line between sales, finance and compliance and everything works out…well, until something happens. Then the “who is to blame” game begins and the contracts are the first place people look.

The oil and gas industry provides many great examples of how complicated contractual relationships can become. If you are in the E&P pipeline drilling business, you have a lot of variables to deal with — from rig equipment manufacturers to contract labor to survey companies and beyond. Not to mention the operating companies themselves.

If you are moving right along, on schedule, and all of a sudden the rig breaks down and you cannot meet your obligation, who is to blame?  If there were a fatal accident or a major injury in the process, who is to blame? If that rock was three times harder to get through than the geologists indicated, who is to blame?

Who bears the risk when things go wrong?

The time and cost involved in simply determining who is ultimately responsible is one aspect.  Determining who is actually responsible and obligated to pay, is the second.

Contracts that are tightly governed and monitored can alleviate a lot of the cost as well as provide owners and executives with clear visibility into the exact risk they will be taking once the contract begins. It’s like the old saying goes, “it’s not the things I know I don’t know that keep me up at night. It’s the things I don’t know I don’t know that do.”

Companies that have an automated contract management system where there is a central repository, a single rules-based legal library and notifications when those rules are modified, are never left wondering what they don’t know.  When they take on risk for the company, they are fully aware of it and prepared.

Automating the contract process starts with a full understanding of the living contract. I guess this is why they call it contract lifecycle management. You need to know how it’s born, how it will progress through its life and how it will end. Of course, there are hundreds of “moving parts” along the way and mapping out those parts and all the subsequent interactions is where the magic of contract management comes in.  It starts with the most basic question — “who can and cannot initiate a contract and what information will they need to know to do this properly?” And can become sophisticated enough to handle 100+ rules for a single contract.

On the third Thursday of every month, we demonstrate exactly how one of the most powerful contract lifecycle management tools work. If you’d like to join us, please click here and sign up. There is no cost or obligation to you. We just want you to experience the possibilities!

What We Said vs. What We Did — Mitigating Contract Risk

Third quarter results are now in. Quick, now it’s your turn  — you have about ten days to verify that all these contracts do indeed meet our corporate and regulatory requirements. Oh, and we also need all the revenue we can get to make our third quarter numbers. I know there are hundreds of contracts to review, but, that’s what we pay you to do. And no, we can’t get the contracts closed any sooner — our client’s are conditioned to wait till the last second to get the best deals. Unfortunate yes, but, nothing we can do about it now. Call me when the numbers are in.

Revenue recognition and compliance — not always the best of friends. The pressure to perform is intense. And, it does seem like some of these rules are a bit much. After all, they don’t apply to everyone in the company — just the new guys who don’t know their way around yet.

For the “finance guys” this period of the quarter can seem pretty lonely, thankless and very stressful. You want the company to meet public expectations and you want everything to be accurate.

Visibility and transparency in every transaction is the solution, but how realistic is it? Companies have checks and balances in place but when push comes to shove, there’s a lot of gray area around the process. For example, to meet deadlines, some companies may choose not to evaluate contracts that are less than $100,000. But, what if there are 2,000 of them? Others have more elaborate ways of sifting through the onslaught of contracts to be verified.

There are no magic wands, but, when you reduce the human aspect of subjectivity in contract creation to something that is more procedural and systematic, you stand a far greater chance of aligning the negotiation-contract-execution process to the rules and regulations you must live by.

Imagine a world where your contract management system alerted you if a clause were altered from any of the approved clause selections in your legal library. Imagine reducing the number of contracts your internal audit team had to review by 90%. Imagine coming to the end of a quarter with time on your hands, able to educate your management team on the risks involved in going outside the system.

Tools like CLM Matrix Enterprise and Fast Track are helping CFOs all over the world mitigate risk and sleep better at night. Join us on the third Thursday of every month for a quick review of how you can get your arms around contract management.