Bridging the GAAP Podcast Series: Contract management and AP: a love story

Speaker 1

Hello, and welcome to Medius' new podcast series, Bridging the GAAP. Together with Spend Matters, we've put together a podcast series exploring a wide range of topics from the evolution of technology and finance, to tax compliance to sourcing strategies to fraud risk and mitigation.

In today's episode, Contract management and AP: a love story, Pierre Mitchell, Chief Research Officer at Spend Matters talks to Gita Andrijauskaite, Director of Customer Success for Source to Contract at Medius, about how upstream contract development is critical for creating the needed data and supplier engagement that will improve downstream AP performances and how addressing contract requirements upfront creates a critical linkage for sourcing to purchasing to payables.

Speaker 2

Hey everybody, this is Pierre Mitchell. I am the Chief Research Officer at Spend Matters and I am very happy to be spending some time with you today discussing the issue of the importance of contract management within accounts payable. And I am thrilled to be joined with an expert in this area. Her name is Gita Andrijauskaite and she is the head of customer success in Europe for Medius and really happy to have her here. So Gita, could you maybe just do a quick intro yourself, and we'll dive into this really interesting topic.

Speaker 3

Sure. Thanks, Pierre. Thanks for having me. So my name is Gita Andrijauskaite, or short for Gita, and I'm a director of customer success for Europe at Medius. I started out in procurement space fifteen years ago as a sourcing specialist, then was a manager at a global supply chain company who were and still are a customer of Medius. I've been with Medius for almost six years. I'm based in London, UK, and my areas of expertise are upstream procurement elements such as sourcing, contract management and supply management.

Speaker 2

Great. Well, thanks, Gita. I like your background where you started in the upstream area. And as we're really going to manage source to pay as an end to end process, it really does kind of start all the way from the early engagement through sourcing and into setting up the contract and then implementing that into our P2P systems.

In that perfect world, you know, that contract and that onboarding would all flow seamlessly down into P2P and we would know exactly how to buy and pay for those goods and services. And it would all be automated and it'd be a great user experience and the suppliers would have no problem and submit their data. Everything would link back to the contract. You might even have some hands free automation and keep humans out of the loop and introducing errors.

But the reality is perhaps a little bit different. And given that you're the head of customer success, maybe you could just give us a little bit of a snapshot as to kind of what are some of the big issues that you see in terms of not seeing this good flow of commercial information downstream? And, you know, how does that manifest, you know, in terms of some of the problems and, you know, where companies can get some value in terms of improving this linkage between contracts and the downstream invoicing and payment processes or just all all of P2P, I guess.

Speaker 3

Sure. Well, I think when we think about contracts, they form the legal backbone of every relationship that a company has with its suppliers, customers, partners, employees, regardless of the size or nature of the business. And if we look at defining contract management, you know, so the key steps would typically involve negotiating best deals with the supplier, drafting a contract, getting it electronically approved and signed through to active monitoring of key dates, obligations, payment terms, really capitalizing on agreed discounts, tracking expirations and renewals. And if we now think why is this important for accounts payable, they really need to verify invoices that reflect the agreed terms.

They need to ensure that the business receives every possible discount, and that suppliers get paid the right amount on time. So really having the visibility and access to this rich contract metadata, which is searchable and reportable, can enable AP to complete these tasks quickly and easily. But, you know, the reality is that this is not always the case. And what we see with our clients, that the types of challenges often depend on, you know, how much and what type of spend a business has, how many contracts they have, how complex these contracts are, and ultimately who is responsible for managing them.

So, for example, in small companies, responsible not only for paying supply invoices, but also negotiating renewals or managing supplier relationships, which means that having access to contracts is critical for them. And, you know, in larger organizations with dedicated finance and procurement departments, the issue we often see is lack of collaboration. So, these functions work side by side, but lack of collaboration when it comes to aligning strategies on working capital improvement can have a negative impact on the bottom line. So for example, if a business is in a position of strength, finance may be focused on extending payment terms with suppliers to improve cash flow position, but that may negatively impact on supply relationships that procurement spent years building, which may then affect service levels and product quality and so on and so on.

On the other hand, you know, paying suppliers early can sometimes have great benefits where suppliers offer amazing trade discounts or rebates for early payment. But, you know, finance and procurement need to work closely together to spot these opportunities and decide the best course of action for the business. Another key issue that we see is lack of visibility. And when companies don't organize their contracts, they can't know what's in them.

And especially when there are thousands of them, they don't know what's in their contracts, so they can't take proactive action and manage them efficiently. And it's really important that AP has this complete visibility of the key terms, dates, delivery, discounts, payment terms, renewal options, termination clauses that will allow them to focus on the financial health of the business.

Speaker 2

Yeah, that's really interesting. I mean, it's a good point about kind of, you know, obviously, we're talking about accounts payable, but there are more stakeholders in finance. Right? So if we think about, you know, obviously the controller, you know, it lives closely with procurement around cost measurement and savings and things like that.

But, treasury, right, in terms of cash and you mentioned kind of working capital and obviously, you know, payment terms and go terms and things like that kind of within the agreement and getting that negotiated upfront and wisely. But those seem to be key stakeholders as well as AP in terms of what AP is doing in various areas, including vendor master data set up or whatever. But you're kind of in the trenches there. I mean, when you think about finance, and I don't if you want to bring legal into this as well, but, you know, what are some of these kind of key stakeholders that are really critical to get involved and maybe just not even, you know, on the P2P side, but those finance folks that you want to kind of get engaged up during contracting so that you know that you're going to make good decisions that are going to then flow through the system down into P2P.

So maybe just talk a little bit about the stakeholder management piece of this.

Speaker 3

Yeah, so you already touched on, you know, that could be the Treasury Department involved, CFO, even the Finance Director, budget holders, depending on the organizational structure of the business, and if they have a central AP department or not. And, you know, all these stakeholders will be worried about budget control and working capital, approving invoices, and so on. So in simple terms, anyone who manages spend will have to manage contracts, and it could be business owners, procurement, contract managers will need to know if suppliers meet their obligations, ensure that renewal deadlines are not missed. Legal departments, for example, will be concerned with managing contractual risk, ensuring compliance with legal regulations, protecting business interests and mitigating non compliance. You know, we have customers, for example, that have the employment contracts in the same central contract management system. So, it's used by HR departments.

So it's one central contract management system, you know, taking care of all these different contracts. And, of course, for HR contracts, it requires secure access by authorized users to protect our sensitive data, but we can cater for that. So there are many, many stakeholders that can be involved, as you say.

Speaker 2

Yeah, that's an interesting example, you know, when you're mentioning HR and, you know, and you get into some of the, let's say contingent labor scenarios and things like that. And it makes you think a little bit about, given your background in sourcing and there's that notion that's burned in procurement's brain around category management and how we tailor strategies based on the nature of the spend category in the market and those types of dynamics. But when you think about P2P, a lot of folks are like, well, it's very simple and commoditized and maybe three way match and ERP and yet that P2P strategy is kind of where the action occurs.

I mean, that's where the savings are accrued and where the value actually gets implemented. But it can be pretty complicated based on the nature of the category. It's not just three way match for all, right? I mean, so maybe you could just talk a little bit about some of the P2P strategy and just linking that into sourcing and how contracts are kind of in the mix there, know, as that linchpin, you know, that connects the upstream to the downstream, etcetera.

Cause it's not as easy, I guess, as people think, right?

Speaker 3

Well, I'm really glad that you asked about sourcing because in any business negotiations with suppliers can take a very long time. And in a period of recession and mass inflation, renegotiating with suppliers and trying to lock in low rates before price increase come in, you know, is critical for many of our clients. For example, now longer term deal may become more attractive if a supplier is able to offer a lower price even if an advanced payment is required. So, you know, there may be different strategies depending on what the business does.

And you'll probably agree that often contract terms negotiation starts during the sourcing stage. So, having a dedicated sourcing solution can really help reduce the time spent negotiating with suppliers, ensure that you are getting the best market value, that all the requirements are captured and potential savings clearly defined, stakeholders can collaborate and align electronically, and then the final agreement can flow through to contract module. And like you say, ideally, then this would link to purchasing to help realize these savings, ensure that business is buying from approved suppliers at agreed prices, maybe from pre approved catalog items to ensure compliance and really ensure these savings are realized.

When we think about commercial strategies, I think it's important to understand what spend a business has. So what is the ratio of, for example, direct to indirect spend, and the complexity of those contracts. To give a couple of examples, if you are manufacturing business, you will be buying a lot of raw materials, say index contracts that are very common in commodity markets. And this spend goes to direct material flow, which is a lot more controlled than direct.

On the other hand, if you're buying professional services, the contract can include complex set of terms and conditions and naturally can be more difficult to manage. And then there can be framework agreements, you know, with a number of individual call off orders with multiple delivery dates over a period of time, which also may include some volume incentive discounts that need to be effectively tracked. In construction industry, we have customers that, you know, use a lot of time and materials contracts that are quite common there, and where a client is billed at those specified rates for the hours and materials required to complete the project.

And whilst these contracts offer flexibility to the client, they need to be really closely managed to make sure that spend does not go over budget. So, you know, I think it really depends on the nature of the business and, you know, the ratio of direct versus indirect and the complexity of these contracts, because there are just so many different types of contracts and approaches when it comes to managing spend.

Speaker 2

Yeah, those examples are just so powerful, because I mean, it just makes you think about just the diversity and complexity of those spend types, right? And you think about supply chain and like freight spend, And all the complexity there on orial charges and all that, as you mentioned, commodity spending, you know, and anytime you're trying to manage the complexity of these value chains that are really complicated, you can't just push it all on to the AP side. They're going to be looking for, great. How do I actually manage this?

And to your point, it's really got to be in the contract. And I guess as much as there's best practices about modeling this deeply within sourcing and putting into contracts, If you don't have the systems that can actually take those complex negotiations around, let's say, or LTL, whatever it is, you know, and put it into an operational system that can actually execute against that. You're not going to really realize these benefits. So it seems like you have to really accommodate that right up front, just like you'd want to negotiate the payment terms and not have that be an afterthought and have that be something that drags out the sourcing process.

Want to accommodate that up front. It does also raise a question around like, okay, so we can think about how to design these P2P processes based on the nature of these categories. But, you know, there's also the age old and I've been in this game for twenty years in procurement in terms of, you know, looking at all this. And one of those earliest problems was kind of supplier onboarding and the supplier's ability to connect and how, you know, what's going to work for them and how they can be successful.

Because obviously if it's just like, well, you get one Z, two Z portal access and you got to remember the password to our system as well as 500 other customers or whatever, or, hey, let's talk about an EDI connection, which is really complicated to set up, when in fact there's a whole spectrum of stuff. I mean, how do you guys think about and deal with the supplier onboarding strategy, you know, upfront, but also just from a P2P standpoint on how you get them on board it? Tell us a little bit about either best practices or the tools you use or that kind of thing.

Speaker 3

Well, I think it's important that supply onboarding process is designed based on supply importance and criticality to the business. So looking at classifying suppliers for us understanding who we buy what from, you know, how much because depending on the type of service or product that suppliers provide, they may be subject to a simple or more complex onboarding process. So if it's a one time supplier, you know, you don't need to subject them for lengthy onboarding process and background checks if you're just buying some cleaning products from them. But if it's a software provider, you may need to ensure that they have all the right certifications, insurances, data security policies, you know, they have background checks, They are financially stable and so on. So I think it's really important to understand the impact that suppliers have on the business to be able to design the right onboarding strategies for them.

Speaker 2

Yeah. I mean, sounds like there's the supplier onboarding from the connectivity and from just the pure AP standpoint. But you're right. It sounds like when you're onboarding, you probably need to consider all the other kind of supplier information management requirements too around qualification, certifications and insurance and things like that as well. And I mean, do you guys, when you're doing this, do you have like some automated surveys or tools and things like you do to kind of gauge where the supply base is like in terms of what they can do versus what they currently do and kind of use that to help set up your implementations? Or how does that work? I know it's kind of probably a lengthy answer, but thumbnail sketch.

Speaker 3

So the supplier management piece takes care of that, you know, customers can create questionnaires that will be triggered to the right suppliers at the right time. You know, suppliers can provide all their insurances, certificates, everything that they need through the portal, they can self serve. And the beauty with this is that, you know, you don't need to police all this information and monitor because it can expire.

You know, with thousands of suppliers, you can just have a lot of information, but it's out of date. So the system will take care of making sure that our supplies are reminded as and when their insurance is expired, when they need to update their financial statements or upload new policies. So, yeah, there is a full automated process to support that.

Speaker 2

Well, that makes a lot of sense. Guess kind of proactively doing that just like proactively notifying your sourcing managers and category managers about, you know, upcoming contract renewals. You want to kind of start reminding the suppliers to get their information in so that there's not going to be any kind of stoppage because they're, you know, suppliers do like to get paid as well. Know, that's like the number one piece of supplier portal, right? That's number one piece of functionality. When am I getting paid? Right?

Speaker 3

Well and they can have visibility of that too. You know? That's what supplier portal is for. If they are transacting with the for the client, they can use the portal and find out. And because one of the also issues with AP is that, you know, suppliers keep chasing for payments, but they are can log into the portal and see when they're getting paid. And, you know, it's a piece and quiet and AP.

Speaker 2

Exactly. Talk to the portal. Let us know if there's problems, but talk to the portal. Well, listen, hey, I know, you know, we've been, kind of talking shop here and getting into the weeds. But just for folks who are not familiar with Medius, you're not always necessarily a household name, the kind of the best kept secret problem. We're familiar with this issue. So maybe just tell listeners just a little bit about Medius and kind of how you help out, not just here, but more broadly across Source To Pay and kind of what you do that I think that would be helpful.

Speaker 3

Well, when it comes to contract management for AP, because that's the subject, you know, our clients can really leverage the best of both worlds. They can automate their accounts payable processes and also allow rich contractual information to flow seamlessly into AP to be readily available to the authorized finance people when they need to verify invoices against contract terms throughout the entire contract lifecycle. But Medius offers more than that. Our clients are able to automate their full source to pay cycle with us.

And depending on the problem they need to solve, they can choose to deploy the entire suite or pick one or two modules to help them tackle immediate challenges. So procurement teams can negotiate better renewal in less time, easily identify which suppliers are fully compliant, preferred, avoid dealing with suppliers who don't offer the best value. So, backed by Medius technology, our clients can save more money, reduce complexity, and truly amplify the benefits throughout the entire source to pay cycle.

Speaker 2

That's great. And I just wanted to pick pick on one thing. It sounds like you talked about kind of the modular nature of it. I assume that if someone already has like a contract management system and it works pretty well and it's granular, you have the ability to sync up with that system, whether it's through your contract system that's like wrapped around it or how I mean, you can kind of make this modular in terms of implementation or like, I just need the invoice management, but maybe not payments right now or whatever. There's flexibility in terms of what they can implement.

Speaker 3

Yeah, especially when it comes to upstream, downstream. So like I said, it depends on what problem a client is trying to solve. If they need to automate invoices and sort out, you know, payments, then they start there. But it doesn't stop them, you know, to just start with sourcing or or contract management, or just supplier management, and then, you know, add other modules later. So yeah, it's completely modular.

Speaker 2

Awesome. Well, you know, I think one of the best practices of things like senior leader training is job rotation, having people work across different areas. And I'm excited to see someone from kind of the upstream side really leading implementation on the downstream side and making sure that value flows properly across the process. And you know, need to tango there, right?

Speaker 3

So absolutely. It's a two-way street.

Speaker 2

Well, thank you so much for taking time to spend with me and kind of getting in diving a little bit into the weeds here around connecting some of the dots here.

I think this was a good top of the waves conversation and appreciate you spending the time and coming out of the trenches to spend with me and sharing some of your insights with everybody else. Thanks so much.

Speaker 3

It's been my pleasure and great to speak with you Pierre.

Speaker 2

And thanks everyone for tuning in.

Speaker 1

That was Contract management and AP: a love story. Special thanks to Pierre and Gita for their time. If you like this podcast, please be sure to subscribe to catch up on our next installment of Bridging the GAAP. And to take all of your business spend management far beyond basic automation, visit medius.com. Thanks for listening.