There is a concept that you do not hear about every day: how a legal department can improve cash flow.
Generally speaking, cash flow management is not top of mind for most general counsels (GCs). It simply is not something that you read about in legal journals or online publications. But its importance is not lost on your business owner and CFO, not to mention accounts receivable, billing, and collections. And certainly, it is not lost on the CEO – I should know; I am one.
So, if it is so important to much of your company and overall business, should it not be a priority for the GC and in-house legal team, too?
Previously, I wrote about how contract management is a value center, not a cost center. In the following post, I will highlight an area often overlooked by heads of legal departments: contract management cash flow.
WHO IS CONCORDE TECHNOLOGY GROUP?
Concorde Technology Group started off as Concorde Infomatics in 1985. Back then, we were primarily a box shifter, building, assembling, selling, and shipping desktops and laptop computers. As you can imagine, there were few annuities or recurring revenue streams associated with this, aside from some warranty work. But, as the company grew, we evolved this particular model.
A good CMS has a positive impact on a company’s contract management cash flow
Today, we have four divisions within Concorde Technology Group:
- Technology Solutions – providing laptops and professional services, and designing, building, and implementing technology
- Communications – for hosted telephony, leased lines, and mobile phones
- Concorde Cloud – providing private and public cloud, cloud-managed services, live monitoring, and systems health checking
- Concorde Security – offering cybersecurity services, endpoint management, firewall penetration testing, and website monitoring
CONTROLLING CASH FLOW
As a CEO, I am always concerned about payment terms, our working capital accounts payable, and cash flow projections. Of course, the most alarming of all are negative cash flows. You can be well-capitalized and established – as well as resources-rich – and still be brought down by a cash flow problem during a cash crunch. It is one of the things that keeps your boss awake at night!
FIRING ON ALL CYLINDERS
In my first blog post, I pointed out the various benefits that Concorde Technology Group has reaped from deploying a robust end-to-end contract management system (CMS). We chose ContractPodAi in the end and have never looked back. But one of the truly critical parts – so seldom discussed even by vendors – is the impact that a good CMS has on a company’s overall ability to bring cash into the business.
Simply put, Concorde Technology Group is a complex business. Our four divisions are like a four-cylinder automobile engine, together thrusting the car forward and each firing in a different sequence. The divisions’ contracts have their own set of terms and conditions, special clauses, payment terms, and timing. And payment timing on thousands of agreements, addenda, and contract renewals can all throw legal for a loop.
CONTRACT MANAGEMENT CASH FLOW
Before Concorde Technology Group had a proper CMS, late payments, missed renewal dates or late billings on an addendum were not uncommon. In fact, billing a customer 60 days after a renewal happened from time to time.
This is where contract management cash flow kicks into high gear. Since the new solution was implemented, invoices have been sent out 90 days ahead of renewals.
You can be well-capitalized and established and still be brought down by a cash flow problem.
CEO APPROVAL
Suppose we had not yet invested in a system. Then suppose that my head of legal or contracts approached me, telling me that they could fix 60-day-late charges for clients with contract renewals. If they told me that they could bring cash into the company five months early, I may not have believed them at first. But ultimately, why wouldn’t I be in favor? What is not to love about this scenario?
An August 2019 Gartner study highlighted the same point. It stated that “business leaders are remarkably open to investment in legal automation – 73% of executives are very open or extremely open to investment.”
GENERAL COUNSELS – MAKE THE MOVE
Imagine for a moment a legal or contracts team that can move the needle on the bottom line. Would they not go from being seen exclusively as a cost center to being viewed as a value center? Is that not the vision and direction that you want for your legal department?
If I were to make a decision around a CMS again, I would do so without the batting of an eyelid. For GCs, my recommendation is to take the same risk and start talking about what proper contract management software can do for your company’s cash flow. You will help your CEO to sleep better at night.
Author:
Neil Roberts
