An Introduction to Contract Compliance

Procurement teams play a crucial role in sourcing, vetting and onboarding suppliers. A supplier can make or break an organisation which is why the procurement process plays a key part in managing supplier-related risk. One aspect of supplier risk management is contract compliance. This article explains what contract compliance is and how it can be streamlined with AI.

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What is Contract Compliance?

Contract compliance describes the systems and processes for ensuring that the rules laid down by a contract are followed. Whilst many teams including the buyer will be involved in the overall monitoring of contract compliance, procurement teams will play a greater part in ensuring that organisation’s spend is compliant. In particular, procurement teams will need to ensure that the invoices correspond to services which have been contracted by the organisation and that the underlying terms in the invoice align with what has been agreed in the contract.

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The Common Contract Compliance Issues with Suppliers and Invoices

There are six most contract compliance issues that you might encounter when engaging with suppliers and invoicing.

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Supplier-related Issues

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Non-compliance with agreed terms

The supplier may not comply with delivery dates, quality, or quantity Stipulations or any other agreed term in your contract (such as reporting or other communication ideas, or control over supply in general).

Quality control and standards

The supplier may deliver substandard goods while technically fulfilling their other contractual obligations. They may just do so with no other plan, or send you substandard goods as a stop-gap to buy themselves more time.

Timely delivery and performance

Delivery time is another key area in which you can run into contract compliance issues with your suppliers.

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Invoice-related Issues

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Accuracy and consistency

Inconsistent invoices (accounting for costs that were not made clear, or having numbers not add up correctly) and inaccurate invoices (charging for other jobs, claiming expenses for things that were not done) are both issues you may face with invoices.

Discrepancies and disputes

Major discrepancies on invoices can be difficult and lead to tricky disputes if one party feels they are owed for a particular task while the other does not.

Payment terms and timelines

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Agreed-upon payment times can be an issue for both the invoicer and invoiced alike if one party decides to deviate from the stated terms.

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These contract compliance challenges are amplified if the invoices and contracts are stored in shared drives and tracked in spreadsheets.

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Utilising AI to streamline Contract Compliance in Procurement

One of the reasons contract compliance is manual and challenging is because the majority of the data is stored in documents. Documents and textual data are difficult to process automatically due to their unstructured nature.

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TextMine has implemented proprietary large language models and knowledge graphs in order to make it possible to structure the unstructured data in business critical documents such as contracts, invoices and POs. By automatically categorising documents and extracting the relevant data, procurement leaders can quickly cross-reference contract and invoice data to ensure that the terms are compliant.

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Compliance managers can automatically generate summaries about their contracts or vendors which streamlines the reporting requirements of contract compliance.

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Building our Large Language Model

TextMine’s large language model has been trained on thousands of contracts and financial documents which means that Vault is able to accurately extract key information about your business critical documents. TextMine’s large language model is self-hosted which means that your data stays within TextMine and is not sent to any third party. Moreover, Vault is flexible meaning it can process documents it hasn’t previously seen and can respond to custom queries.

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About TextMine

TextMine is an easy-to-use data extraction tool for procurement, operations, and finance teams. TextMine encompasses 3 components: Legislate, Vault and Scribe. We’re on a mission to empower organisations to effortlessly extract data, manage version controls, and ensure consistency access across all departments. With our AI-driven platform, teams can effortlessly locate documents, collaborate seamlessly across departments, making the most of their business data.