In the context of economic globalization and digital transformation, the complexity and importance of contract management are increasing, and contract management, as a key component of enterprise internal control, is becoming increasingly important in financial and accounting supervision. On February 15, 2023, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Opinions on Further Strengthening Financial and Accounting Supervision", which clearly proposed to deepen "Internet + supervision" and make full use of big data and information technology to effectively improve the efficiency of supervision. At the same time, the "Opinions" also clearly put forward the establishment of a major risk identification and early warning mechanism in the field of finance and accounting. The contract is an important carrier of the economic activities of the enterprise, and runs through the whole process of the production and operation activities of the enterprise, by strengthening the contract risk management, as the anchor point of building the enterprise risk control system, can effectively strengthen the financial supervision of the enterprise and play the role of financial supervision.
1. Digital intelligence empowers the construction of a contract risk control system
With the development of information technology, digital intelligence provides new ideas for enterprise contract risk management. With the help of artificial intelligence, big data, blockchain and other digital technologies in contract management, it can not only reduce human intervention and processing time in contract management, accurately identify key clauses and risk elements in contracts, find potential problems in time and prevent and solve them, help enterprises prevent economic risks, reduce contract management costs, improve the efficiency of contract management, and also help discover new business opportunities. Enterprises need to think deeply about the application of digital intelligence in the whole life cycle management of contracts, build a contract risk control system and even an enterprise risk control system, so as to improve the level of enterprise risk management, respond to market competition challenges and compliance requirements under the new situation, and achieve high-quality development of enterprises.
From the perspective of financial and accounting supervision, the integration of digital intelligence technology enables the finance department to play a core role in the whole chain of contract management, from drafting, signing, execution to monitoring, and significantly enhances the synergy between finance and business. This not only deepens the understanding and participation of financial personnel in the business process, but also ensures that timely and accurate information support and risk warning can be obtained at all stages of pre-planning, in-process execution and post-review of business activities. In this way, finance not only serves as the guardian of compliance and efficiency, but also becomes the driving force of enterprise value creation, fully demonstrating its key value in strategic decision support and risk prevention and control (see Figure 1).
Figure 1: Group risk control based on the dynamic integration of contracts before, during and after the event
Key Digital Intelligence Application 1: Portrait of the Counterparty of the Contract
Build a digital and intelligent contract management platform, integrate the database of suppliers and customers, and transform the financial data such as the capital flow, credit status, profitability and operation status of past counterparties into a long-term and dynamic file network. This measure not only provides a detailed basis for feasibility assessment in the contract pre-signing stage, but also injects solid data support for risk management and control in the contract implementation process. By analyzing these digital profiles in real time, companies can sharpen market dynamics, seize business opportunities, and strengthen their negotiating stance, thereby enhancing their competitive advantage (see Figure 2).
Figure 2: Merchant portrait risk control model
Key Digital Intelligence Application 2: Contract Intelligence Template Library
Through the deployment of a digital and intelligent contract management platform, the template and standardized processing of contract texts are realized, and key financial information such as the subject amount, payment terms, tax rates and invoice specifications are modularly integrated, and the risk monitoring points are strengthened. This platform builds an interactive network of financial and contract information, ensures the seamless connection between business and financial data, promotes the forward-looking prediction of capital flow and the scientificity of tax planning, provides solid financial data support for contract decision-making, and effectively improves the level of financial intelligence in the signing process.
Key Digital Intelligence Application 3: Real-time monitoring and early warning of contracts
During the execution of the contract, the seamless sharing of business execution data with finance and other departments is realized, and the finance department monitors the contract process in real time, closely follows the "business flow" and "capital flow", and ensures the real-time acquisition and analysis of the contract execution dynamics. This linkage mechanism enables finance to flexibly adjust capital planning, accurately control the timing of payment collection and payment, and maximize the efficiency of capital turnover. The execution node agreed upon by the contract is directly linked to the revenue recognition or costing process, and the treasury management strategy is automatically executed according to the payment terms. Once the actual execution deviates from the terms of the contract, the digital and intelligent contract management platform immediately activates the early warning system, prompting the financial department to intervene immediately, correct the funding arrangement in a timely manner, and maintain the financial health and stability of the contract performance.
Key Digital Intelligence Application 4: Contract Intelligence Analysis Report
Digital and intelligent transformation facilitates the seamless connection of the whole life cycle management of contracts, covering every step from preliminary investigation to collection and payment, implementation of changes and even settlement, ensuring the free flow of information among relevant departments. The finance department took this opportunity to deeply integrate the data of the whole contract process, conduct comprehensive analysis and timely feedback, and provide data-driven decision-making support for strategy formulation. After the termination of the contract, the financial department is deeply involved in the summary and evaluation process, not only to review the economic benefits of the contract implementation, but also to comprehensively count the business performance of the enterprise and prepare a detailed analysis report. This series of actions greatly enhances the insight of enterprises into business data, accurately grasps contract risks and profit margins, not only provides a strong backing for current operation and management, but also opens up new horizons for predicting business trends.
- The digital intelligence of contracts enhances the operational risk system of large enterprises
In 2023, a long-term cooperative customer of a large state-owned enterprise declared bankruptcy liquidation, and the headquarters of the large state-owned enterprise group immediately carried out a special inventory to clarify the transactions in execution and the balance of transactions with the customer. The results of the inventory shocked the management of the group, many of the group's subsidiaries have business dealings with the customer, and the total amount of contracts in the implementation is huge, far exceeding the group's risk control red line, and it is also found that some subordinate enterprises have violated the law and overused credit resources. The incident not only brought large economic losses to the large state-owned enterprise, but also exposed its weakness in operational risk control. Subsequently, the large state-owned enterprise set up a special class for business risk control, and after several rounds of discussions, it finally finalized the construction plan to take contract management as the entry point and enhance the group-level business risk control system with the help of digital and intelligent means.
- Build a unified contract digital intelligence platform for the whole group, realize online management of all contracts of the whole group, and manage contracts in a hierarchical and classified manner according to business scenarios and management requirements;
- Establish a contract standard text library, and with the help of AI technology and large models, build an intelligent review assistant for contract text compliance and risk control, so as to prevent and control contract legal compliance risks and related business risks to the greatest extent (see Figure 3);
Figure 3: Intelligent risk control application based on AI technology and large model
- According to the key points of control and analysis needs, the information on the terms and conditions related to contract operation is structured and digitized, so as to realize the real-time update of contract-related operation data of the whole group, and monitor and warn the core key indicators.
- Establish a group-level merchant portrait and risk evaluation system, and regularly update the credit and risk coefficient of key merchants in combination with external credit information and internal transactions, as an important basis for risk prediction and monitoring in the process of subsequent contract signing and performance;
- Establish a group-level credit risk management mechanism for merchants, connect with the terms of contract signing and financial settlement, calculate the credit limit of merchants in real time, and realize the refined management of merchants' credit risk (see Figure 4).
Figure 4: Merchant credit risk control management mechanism
3. New challenges brought about by technological innovation and financial supervision
Technology convergence and adaptability: With the application of blockchain, artificial intelligence, big data and other technologies in contract management, financial and accounting supervisors need to quickly adapt to these emerging technologies. Technology integration requires accounting personnel not only to be proficient in financial knowledge, but also to master certain technical application capabilities, such as understanding the operation mechanism of digital intelligence contracts, using data analysis tools for risk assessment, etc., which puts forward higher requirements for the knowledge structure and skills of traditional accounting personnel.
Cross-departmental communication and collaboration: The introduction of technology and the strengthening of financial and accounting supervision require the establishment of closer collaboration mechanisms between legal, IT, and business departments within enterprises. Synchronization of information, system compatibility, and definition of responsibilities between different departments can be challenging, especially in large enterprises, where coordinating resources and interests can be challenging.
Talent training and team building: The deepening of technological innovation and financial supervision has put forward higher requirements for human resources, and enterprises need to cultivate or introduce compound talents who understand both finance and technology, and establish a culture of continuous learning to ensure that the team can continue to follow up on technological development and improve the overall contract management efficiency.
Epilogue:
Contract management is not only to prevent business risks, but also an important way to improve business efficiency and optimize resource allocation. Through continuous innovation in management methods and deep integration of digital and intelligent technology, enterprises can use contract risk management as a precise anchor in a complex and changeable market environment to ensure financial security and promote the steady realization of corporate strategic goals.
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- General Office of the Central Committee of the Communist Party of China and General Office of the State Council: Opinions on Further Strengthening Financial and Accounting Supervision, 2023
- Accounting Department of the Ministry of Finance: Improving the Efficiency of Contract Management and Safeguarding the Legitimate Rights and Interests of Enterprises, 2010
- Ministry of Finance and China Securities Regulatory Commission: Notice on Further Improving the Effectiveness of Internal Control over Financial Reporting of Listed Companies, 2022
- Han Fei and Shao Jiaying: "Financial Value Creation in Contract Management in the Context of Digital Transformation of State-owned Enterprises", published in The Economist, Issue 01, 2024
- State-owned Assets Supervision and Administration Commission: Measures for the Compliance Management of Central Enterprises, 2022