I’ve been talking to a lot of financial services companies lately. This industry is beautiful in its simplicity and yet complicated in the many different ways they avoid the middle man of products and services to focus on money. But do you know what underlies all of their ability to create, distribute, collect, loan, use, or have others utilize money in some manner? If you guessed contracts you’re obviously a big fan of my blog or a master of contextual reading. Or perhaps you read the title of this blog. Either way, you are right.
Financial Services companies aren’t raw goods manufacturers or consumer goods retailers. Their main product is money and that product is evidenced by contracts. They are contract factories. And because they are so smart and know where the money lies they are looking at contract and commercial management in aggressive ways and demanding innovative services.
So what are they asking me about? Obligation Management and Invoice Validation. Not surprising really. They want to understand risk mitigation (stopping losses) and ways to limit cost overrun. These are two services that are tied together and make perfect sense as the core of any contract and commercial management service and as such are what we recommend as the building blocks for full service. Here is why:
- Obligation Management: Take all of the key deliverables and obligations in a contract and make them searchable, tractable and reportable. Uncouple the narrative and put them into uniquely digestible packets. Such a basic idea, but at the same time a basic first step to understanding the risks, forecast and projections within any contractual bundle. Any risk mitigation strategy that doesn’t feature obligation management is incomplete. Apologies if that is upsetting. You could hardly say that reading the first 30 pages and last 30 pages of any novel means you understand it. But a proper risk management system needs to read every page and categorize it.
- Invoice Validation: Take all of the obligations in a contract and use that as a filter for whether an invoice from a vendor is correct or not. Look that whether there is a default, remedy, rate card issue, ARC/RRC, pricing adjustment, etc. This will give you the clearest view of any invoice and spend. Even if your business isn’t just money, you might want this too.
So Financial Services companies are doing well and they should. They tend to focus on what is most important: the contracts.