CFO Expectations of Contract Management

CFO Expectations of Contract Management

In order to perform well within a contract management role, you need a knowledge of things which are essential to both stakeholders and company leaders in regards to the contract lifecycle. Plus, the expectations of people who actually manage contracts.

Chief financial officers use contract data to determine company performance, areas of risk, establish goals for growth and set financial projections. Therefore, anyone who manages contracts within an organization needs to submit information to their CFO, which is both timely and accurate, allowing them to have oversight of things like revenue and expenses.

CFOs are likely to have particular concerns surrounding contract management. In this article, we talk about four areas that CFOs are most likely to have concerns and expectations.

 

Purchase Side Cost Tracking

Perhaps one of the main things a CFO is going to be concerned about is how each contract affects financials. Notably, the costs associated with the buy-side.

If you happen to be involved in this, the chances are that questions have been raised about the things you buy that allows the business to operate effectively. It may have been suggested to you to investigate how to lower these costs, perhaps by finding an alternative vendor or through negotiation with existing ones.

To allow you to be able to respond to these types of queries quickly, you’re going to need to keep an eye on buy-side contracts through tracking of costs. You will also need to encourage your team to lower their spending if possible, whilst investigating where other expenses can be eliminated. CFOs will also be responsible for creating financial projections because they help shed insight into how healthy the business is. With this in mind, make sure you have all contract costs at hand.

 

Revenue Tracking for Sell-Side Contracts

While CFOs do tend to be interested in the tracking of contract expenses, they also will want to know expected revenue from sell-side contracts as well.

As well as keeping up to date with most aspects of upcoming revenue, contract managers will also need to be aware of any problems that have occurred during the contract cycle which may have affected the estimated revenue. For example, if any agreements are being renegotiated or restructured due to a customer being unhappy with the service received throughout a contract. In this case, the CFO needs to be aware that the original contract estimate will not be the same.

Above all, be sure to provide the most up to date information to your CFO with regards to revenue and expenses, so they have everything they need for budgeting and forecasting.

 

Audit Preparation

If a business has an audit scheduled, both CFOs and contract managers will need to have an input. Corporate documents and contracts will need to be reviewed so that auditors can determine the performance of the company, whether this is regarding compliance or financial.

The chances are that the auditing team will want to see all your contracts, so they can determine whether they meet various industry regulations or to back up your financial information. As a result, your CFO will request contracts from you, and this information will probably need to be provided quickly. So, if your audit is fast approaching, be sure to have everything collated and readily accessible.

 

Know the Business Impact of Deadlines

End dates, revenue, and expenses associated with individual contracts are some of the tools that CFOs use to determine the financial health of an organization. Aside from these, there are other questions which can be asked such as:

 

  • Will revenue be affected when accounts churn for sell-side expiring contracts?
  • After contracts expire, will they renew or be renegotiated?
  • What date do different agreements expire?
  • Will a large number of contracts expire around the same time?
  • Do new agreements need to be in place when a buy-side contract expires?
  • To keep revenue healthy, is there anything in place to replace expiring agreements?

 

Of course, answering these questions doesn’t solely rely on contract managers. Several different departments will need to be consulted. Ultimately though, contract managers will need to provide as much information to the CFO as possible.

 

Contract Information that CFOs Might Request

CFOs and stakeholders often use different types of contract information to take the company forward and improve it. With this in mind, contract managers will need to provide most of the necessary information.

It tends to be the case that CFOs are more focused on certain parts of contracts like financials.

Contract costs are one area they are very interested in, considering the significant knock-on effect they can have on other parts of a contract. CFO’s use this data for financial projections which can then be used to determine the overall health of a business.

CFO’s are also usually interested in contract revenue for the selling side. They may request information related to budgeting and forecasting, so they can determine things which have a knock-on effect on revenue.

Audits are likely to take place with regards to contracts, so all information needs to be accessible from a single, central location.

While all this might seem like a burden for contract managers, other departments within an organization will also need to have some input. Particularly in circumstances when contract managers do not have that information available.