Contracts with suppliers are most often viewed as tools that help companies avoid risk and ensure compliance. But many companies are discovering that contracts are a reliable and scalable way to free up funds for growth — just through the straightforward act of guiding every single buyer to purchase contracted goods and services every time they’re needed.
And why now? Just under half of finance leaders in the U.S. and Europe expect profit increases to come from expansion into higher-growth regions*. This is a significant opportunity to train teams on best practices in procurement. Now’s the perfect time to establish company-wide procedures that eliminate rogue spend and create a margin multiplier effect through on-contract spend.
What is on-contract spend?
You’re probably familiar with its opposite: off-contract spend, also known as “rogue spend” and “maverick spend.” This kind of spend occurs primarily in indirect spend and when users buy goods and services at non-negotiated (and possibly higher) prices or from suppliers who don’t have formal agreements with your company — or both.
At Coupa, we define “on-contract spend” as a measurement of the percentage of spend a company puts through pre-negotiated contracts to enable better prices and terms.
But on-contract spend is more than a number. When companies increase their on-contract spend year over year, that delta shows that the company is taking more effective steps to source strategically, perform due diligence, and leverage advanced technology, laying a solid foundation for profitable growth.
Learn more about how getting more spend onto contracts can fuel growth and unlock capital within your business.
How finance and procurement organizations benefit from higher on-contract spend
Faced with ongoing macroeconomic uncertainty and a mandate to protect and grow margins, finance teams never want to leave money on the table. But that’s exactly what happens when upstream processes aren’t seamlessly connected to downstream processes. Procurement can do an excellent job identifying suppliers, negotiating favorable terms and conditions, and onboarding them quickly — but the financial impact isn’t realized if company employees keep buying off-contract goods and services or from suppliers without contracts. What’s more, finance teams don’t have the data to track spending patterns that support spend forecasting and cash management.
Higher on-contract spend helps finance and procurement teams:
- Minimize price hikes and lock in lower prices with contracted suppliers by channeling more spend through each contract.
- Optimize cash flow because higher amounts of spend are covered by favorable payment terms in each contract.
- Reduce financial risks by prioritizing relationships with suppliers who have risk-related contract protections in place.
The catalyst for higher on-contract spend: A unified source-to-pay platform
To channel more spend onto contracts, procurement teams must first identify which suppliers aren’t under contract. (Note: This primarily affects indirect spend, since suppliers for direct materials are contracted as a way to protect revenue-critical production and distribution.) Surfacing those suppliers can pose a real burden when manual processes and point solutions are in place. This is an excellent time to evaluate a total spend management platform for source-to-pay.
A modern total spend management platform uses digitization, automation, and the power of AI to give you a comprehensive view of all of your company’s suppliers for direct as well as indirect materials and services.
- For indirect spend, you’ll gain the visibility along with the AI-driven analytics capabilities to focus on your top spend categories, consolidate suppliers in those categories, and get the right ones under contract. This increases your negotiating power, optimizes costs, and protects your company from risk.
- For direct spend, you’ll unlock contract data that may be siloed in multiple ERP instances to give finance teams real-time and complete visibility into all contract spend in one place, so they can make smarter and faster decisions on suppliers that are critical to business continuity.
“Coupa has transformed our business. We went from rogue spend to 100% on-contract spend classified in Coupa.”
— Chris Courtemanche, Procurement Innovation Manager, Glencore
Once you have complete visibility into on-contract spend, you enable your procurement organization to drive profitable growth by:
- Consolidating suppliers to eliminate redundancies and obtain better prices.
- Getting more suppliers under contract.
- Connecting all contracts to intelligent intake and orchestration so even new and infrequent users buy from the right vendors at the right terms and conditions.
Ready to learn more about how to create a margin multiplier effect with higher on-contract spend?
* The Coupa Marginal Gains survey was conducted in December 2024 by Sapio Research, reaching 400 financial decision-makers from companies with $250 million annual revenue or more. The survey fielded 100 respondents each in the following markets: U.S., U.K., France, and Germany.
† The 2024 Coupa Clarity Total Spend Management Benchmark Report
‡ The 2024 Coupa Clarity Total Spend Management Benchmark Report for Small and Midsize Businesses
