Vendors, compliance, risk – OH MY! The burden of vetting vendors and ensuring that they do not introduce unacceptable risk to the organization falls squarely on the shoulders of financial institutions.
The cost of regulatory compliance in financial services is far from stagnant. In a report by Thompson Reuters, 54% of the respondents in the United States expected increases in cost to their compliance budget. As the time and money for regulatory compliance grows, what if vendor contract management could save you money (or even make you money) instead of always being that loud “sucking sound” you hear?
A Louder Sucking Sound?
Did you know that contract details are sometimes incorrectly keyed into the tracking tools used by financial institutions (for many, Excel spreadsheets)? It’s not a minor concern. It would not be hyperbole to peg the average error rate in manual entry of contract details at 5%. Maybe not a big deal? Au contraire.
The rule of thumb is that entering data costs one dollar; fixing an error after it is entered costs $10; and errors related to the error if unfixed can be as high as $100 per keystroke. Given that the average number of keystrokes for manual data entry is 8,000 per hour, the impact is significant. But wait, there’s more!
Eye Popping Errors
Beyond the 5% error rate in contract data entry is the average error rate on invoices. It is 10%, according to an internal survey SRM conducted across hundreds of thousands of documents. Not all of these are small, and the larger ones can be eye popping.
One instance we’ve seen, for example, had an annual impact of more than $600,000 for the client. The cause was traced to a member of the institution’s team who had inadvertently added a high-value service from the vendor. The good news is that the error was found quickly, and the supplier was willing to refund the charges. Not all vendors may be that gracious, and not all such errors are caught with manual audits.
The Power of Automated Contract Tracking and Invoice Auditing
The buzz around artificial intelligence (AI) has spawned offerings designed to address the lack of efficiency and cost of errors that plague back offices, especially in the area of contract and vendor management. TAB (Tracking, Auditing, Benchmarking), our own cloud-based software, enables financial institutions to automate vendor invoice audits as well as the tracking of their supplier service contracts.
In addition to its capabilities related to contract cost/savings, tracking and vendor invoice auditing, TAB addresses the failure to respond to key contract milestones like expiration dates, auto renewals and notifications of termination. For notices of non-renewal alone, we have found that institutions fail to cancel a non-renewal between one-quarter and one-third of the time. Given the fact that many banks and credit unions are tracking dozens and even hundreds of contracts via spreadsheets, it’s no wonder that here too, the impact is substantial. Our firm has seen a missed beat cost a financial institution hundreds of thousands of dollars, a loss easily prevented using software such as TAB that costs a few thousand dollars a year.
The Bottom Line: Use cases of AI in the back office have been growing as financial institutions increasingly realize the tangible benefits of intelligent workflow, optical character readers and robotic process automation. However, AI’s potential to alleviate the strains of contract and vendor management is often underestimated. Overlooking important deadlines or not leveraging enough lead time ahead of going to the negotiation table is costing banks and credit unions millions of dollars annually. Why not turn money being lost into money gained?