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Cost Reduction a Key Benefit of Contract Compliance Audit

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by Beroe Inc
11 April 2021

By ensuring compliance with contract terms and conditions, and also uncovering overpayments or under-reported revenue, cost savings is one of the top benefits of Supplier contract compliance audit service.

Supplier contract compliance audit services, which involve generalized and specialized consulting companies helping the clients with cost reduction as well as increased cash flow, is a growing segment. Services like capital equipment & MRO, fleet & logistics, administrative, IT and telecom, specialized professional services, and sales/marketing are difficult to rule out for big MNCs, who are already benefitting from the contract compliance auditing services.

However, when consulting a firm or agency, supplier contract compliance also has various benefits that go beyond evident cost reduction and increased cash flow.

During these challenging times, in midst of a pandemic, cost-cutting is of major significance. Investing in supplier contract compliance audit services is an effective route for organizations for cost reduction and increased cash flow, along with various other benefits.

Similarly, for companies with third-party relationships, the risk is high. Contract compliance audit services help in risk management by enabling higher transparency and paving way for clearer communication between the company and third-party. Also, for companies expanding into international markets, contract compliance audit services ensure that, all research and operational expectations are met with the current market standards. It can help reduce the cost of such international expansions, as well as validate compliance and improve efficiency to achieve higher ROI.

The contract compliance services market report focuses on each of these providers’ services and history in depth. These specifications include categories like their major clients, time taken for an audit, geographical restrictions, capability to serve offshore or onshore, number of audits annually run by them, recovery percent charges, pricing models, company headquarters, number of employees, number of sales, audit in comparison to big players of the industry and competitors at every stage, contact details of the firm, etc. These are all specialized firms that focus on a specific industry or task. Generalized firms, who have been around for years, provide contract compliance audit services for all industries and tasks -- ranging from basic consulting to complex technology.

Especially for companies that are expanding globally, supplier contract compliance solutions are highly recommended. The return on investment is approximately 4 to 6 times, and the cost recoveries range from 20 to 50 percent depending on the spend volume. Regarding suppliers auditing best practices, 4-12 hours on average, per individual supplier audited, is the typical duration of an audit. The top companies accept both on-shore and off-shore audit services. 25,000-75,000 pounds per audit is the average price prevailing in the market. In this segment, tiered pricing is a commonly adopted model. The actual pricing is influenced by several factors, including the volume of transactions, format of data, number of categories in scope, and more.

Key Findings

  • The return on investment for supplier contract compliance services is 4 to 6 times.
  • The main benefit of supplier contract compliance services is both cost reduction as well as a push to increased cash flow for the organization.
  • There are two types of contract compliance audit service providers: generalized and specialized firms. Generalized firms provide services for all tasks and industries. Specialized firms provide auditing services for a specific task or industry.
  • Supplier contract compliance is highly beneficial for companies planning to expand internationally to ensure their technology and operations audit is on point.
  • In a tiered structure, for the average spend recoveries of up to $100,000, the average recovery fee charged by the Vendor Payment Audit and Recovery Services providers on a high level is 40-50 percent of the recoveries.

Before launching the search for a new supplier, Procurement Managers should:

  • Be aware of various types of suppliers in the contract compliance services market.
  • Be aware of generalized and specialized audit service providers with their pros and cons.
  • Maintain a comprehensive list of generalized and specialized service providers.
  • Have details relating to specialized service providers' company profile and clients.
  • Map the benefits the company can realize through supplier contract compliance services.
  • Try and convince the stakeholders with the help of case studies and examples of how other companies perform supplier contract compliance services.
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