The once-in-a-generation spike in inflation we’re all experiencing continues to be an ongoing concern around the globe. Businesses are juggling higher input costs on the buy-side while determining how much of the price increase they can share with their customers on the sell-side.
As if all that wasn’t enough, companies operating outside the United States have another challenge to address: a very strong US dollar. The dollar is the strongest it has been in decades. It is attracting more investors to convert their assets into a currency long seen as a haven at times of uncertainty. Few currencies have been safe from the strengthening dollar, as Schwab reports:
“The U.S. dollar has risen sharply off its May 2021 low, posting a 14% gain (at its recent peak) against a broad basket of currencies. It now stands near its highest levels in decades against major currencies like the euro, the British pound, and the Japanese yen.”
This fluctuating value against the US dollar makes planning difficult for businesses and exacerbates the impact of inflation on the bottom line. That’s because companies may be buying products in dollars but selling in a weaker currency.
Contracts provide a solution
Thankfully, companies may find recourse in the form of their contracts. Effectively managed contracts can help protect companies hurt by worsening exchange rates.
Many contracts contain clauses dictating what currency purchases are made with. If your company is hit with unfavorable exchange rates, you should determine which supplier contracts contain these clauses and document what they say. This can uncover situations where the contract entitles you to buy products in your local current instead of USD. A favorable adjustment given the above dynamics. This can also surface contracts where the currency is not defined. Where this occurs, businesses have room to negotiate with their suppliers to ensure they are getting a fair deal.
A contract lifecycle management solution (CLM) becomes indispensable in the management of this valuable enterprise asset – the contract. With CLM, companies can have real-time access to contract insights, manage data and analytics, and fight and address inflation via clauses.
What do you need to do?
Four conditions must be in place to leverage contracts in this way.
- Before anything else, organizations must have a suitable CLM solution in place
- Organizations need to know where their contracts are. Contracts that sit in a category manager’s email or inside a desk drawer cannot be fully realized
- Contracts must be digitized to provide clause-level insights into the contracts. The CLM solution will need to be able to recognize what a currency exchange clause looks like and what it says
- Organizations will need a way to operationalize contract insights. A good CLM solution can tie currency language into a finance system, ensuring what’s happening to exchange rates is aligned with agreed upon terms – in real-time
These four conditions apply to contracts already in place. With the right system, companies can take steps to ensure their future contracts have better currency exchange terms. While strategy may vary based on a company’s needs, the right contract management system helps ensure that strategy is implemented when entering new contracts or renegotiating existing ones.
At Icertis, we call this “Contract Intelligence” – the ability to ensure the intent of every contract is correctly memorialized and fully realized. As organizations are expected to respond to rapidly changing market conditions, economic climates, and customer expectations, contract intelligence is vital.
Conclusion
Global companies have the potential to overcome the adverse effects of a strengthening US dollar. While the dollar has cooled recently, the experience demonstrates why having tools to operationalize the information found in contracts is critical. Icertis has worked with customers to analyze hundreds of thousands of contracts to determine which agreements include price adjustment clauses. Those customers are now better prepared to keep up with surging prices. Advanced contract management systems that use contract intelligence help businesses ensure resilience in the face of current challenges and prepare for whatever comes next.
With unmatched technology and category-defining innovation, Icertis pushes the boundaries of what’s possible with contract lifecycle management (CLM). The AI-powered, analyst-validated Icertis Contract Intelligence (ICI) platform turns contracts from static documents into strategic advantage by structuring and connecting the critical contract information that defines how an organization runs. Today, the world’s most iconic brands and disruptive innovators trust Icertis to fully realize the intent of their combined 10 million+ contracts worth more than $1 trillion, in 40+ languages and 90+ countries.
