The difference between a saving on paper and a saving in the results

Two figures that rarely match

The amount recorded as a saving when a contract is signed, and the amount actually visible in the results at year end, are two different figures. A study by World Commerce & Contracting, which, together with the Commerce and Contract Management Institute and Icertis, surveyed nearly 200 companies across various sectors, offers an explanation for this: in most companies, contracts are still treated purely as risk documents, not as financial assets that need to be actively managed.

Whoever files the contract away after signature instead of managing it loses value – not through a mistake, but through omission. Companies that, by contrast, run their contracts as financial assets and monitor them continuously achieve, according to the same study, 5.4 per cent more contract value on average than the rest.

Where the gap comes from

Between a negotiated saving and its effect on the results there are several transitions at which value is lost without anyone noticing:

• The time until it takes effect. A new price often only applies from the next delivery cycle, or once existing stock has been used up. Weeks pass between signature and the first invoice at the new price, and nobody factors them out of the saving that has been recorded.
• The volume actually taken up. A discount tied to a purchase volume only works if that volume is actually ordered. If demand changes, the saving changes with it – usually downwards and unnoticed.
• Ongoing checks. Without a regular comparison between the agreed price and the price actually paid, discrepancies go undetected until an external audit uncovers them – if it ever does.

Each of these transitions is small on its own. Added together, they explain why a saving that looks convincing in the negotiation record often delivers only part of its value in the results.

What ‘running the contract as an asset’ means in concrete terms

The WorldCC study describes the difference as a question of responsibility – alongside the technology involved: as long as legal, purchasing and finance treat the contract as three separate tasks, nobody remains responsible for its effect on the results. Only once one function continuously checks the link between what the contract says and what is actually paid does a one-off negotiation become a lasting saving.

In practice, that means an invoice is checked not only for completeness but for consistency with the agreed price. A volume threshold that triggers a discount tier is monitored before the year ends, not after. And a contract that is expiring is renegotiated in good time, rather than rolling over automatically on less favourable terms.

Why this is rarely noticed in finance

One reason this gap goes undetected for so long lies in the reporting logic itself. A saving is booked the moment the negotiation ends – as a forecast for the current or coming year. Whether that forecast materialises is, in many companies, not separately tracked, because no dedicated check is provided for it. The original figure moves from the negotiation presentation into the budget plan and on from there unchanged, while the prices actually paid sit in a different system – accounts payable – that is never again reconciled against the negotiation. Both figures exist, just separately from one another.

The question for your own contract portfolio

If you want to know how large your own gap between paper and results actually is, you do not need a new negotiation. It is enough to check, for your ten largest current supplier contracts: does the price most recently paid match what was agreed? Was the agreed purchase volume reached? And who in your company would have noticed if that had not been the case?

If you cannot answer that last question, the real task lies not in the next negotiation but in the time after it.

The effort involved in this check is small compared with what it reveals. In most cases, an afternoon with the invoice data from accounting and the signed contracts from purchasing, laid side by side for the same ten suppliers, is enough for you. If the two figures agree over several months, the negotiation was indeed what it promised to be. If they diverge, your next sensible task is not a new negotiation but making the gap between contract and payment visible in the first place.