Contract compliance, what it is and how it can help your company.
Contract Compliance is exactly what it says on the tin. It is ensures that the invoices received from your suppliers are complying to the contract that you put in place with them.
It sounds very simple and you would assume that your company already does this, because it is so simple, however they do not. Most invoices are automatically 3 way matched, which means the purchase order value, the quantity and service has been received. Whilst this process speeds the process up utilising automation, reducing time and effort, it sometimes misses the detail.
If you think about the volume of invoices that you receive in your company daily, it can be for some companies thousands, from small £50 invoices to £250,000 invoices.
The contract compliance approach takes your top 10-20 suppliers by volume and value and performs a forensic deep dive on the invoice to ensure that all the elements being charged comply to the contract.
Areas where I have found exposures are on hire items, where the rate should reduce after a set period, however it is not reduced and goes unnoticed.
Internal and external storage, the invoice is for 100,000 m2, the space you are utilising is 91,000 m2, your company is overpaying for space, however it goes unnoticed.
There maybe a volume discount clause in the contract, whereby your company will be in receipt of a bulk or volume discount if you purchase a certain amount of fuel over a period of time, your purchase price will be reduced for example, you pay £20 per litre for 100,000 litres of Marine Gas Oil, if your company purchases 100,001-200,000 litres of MGO the price drops to £18 per litre.
However, your company has not been tracking the utilisation, your supplier has not notified you and the discount point was reached 6 months ago, and you have been paying the £20 per litre rate, when you should have been receiving the £18 per litre rate, you are now in a position where the contract is not being complied with and you need to make a credit claim from your supplier.
Requesting credits from your supplier can be difficult and uncomfortable, which is why using a 3rd party to perform this service for you and negotiate the credit, can help preserve the client supplier relationship.
If you do not have a contract compliance function or somebody focussing on contract compliance, you maybe losing money on every invoice that you receive in from a supplier.
You may also be under charging clients, through a poor understanding of the terms and conditions of the contract and not managing the scope creep which nearly always occurs in projects and contractual relationships. Contract compliance protects your company’s interests and saves your company money.
Services
Contract compliance can be undertaken prior to Contract Award. This review removes any ambiguities, omissions, duplications and contradictions which can lead to over charges, under charges or costly misinterpretations. This service can be undertaken remotely.
Contract Compliance can be undertaken as a Pre-payment service designed to detect any non-compliance before invoices are paid. This service detects non-contractual rates, over-charging, poor supporting documentation, volume and bulk discount non-compliance, which are all eliminated prior to invoice payment, in real time. This service can be undertaken remotely.
Contract Compliance can be undertaken as a Post Award forensic deep dive at the suppliers offices to ensure all elements of the commercial contract are complied with. This can also be referred to as a supplier audit and can focus on the financials, the commercials, health and safety, risk management and the general management of the contract. This service can improve the relationship between supplier and client by highlighting any operational improvements that can be made.
If you would like to learn more about Contract compliance or Audit Ink’s Contract Compliance services, get in touch kara.griffiths@auditink.com or head over to www.auditink.com