A typical business partner relationship involves a trust-based arrangement written into a contract that requires the reporting of information. Third parties often work under highly complex contracts and inaccurate reporting may occur because of misunderstandings, mistakes and occasional deliberate misstatements, all of which lead to financial risks.
Agile organisations all over the world, Bulgaria being no exception, strive
to enhance the value of commercial relationships and are focusing renewed
attention on third-party business partner relationships.
Is trust enough in business? When an organisation moves its products
through distributors, retail channels, or resellers, it is important to consider
how it is monitoring compliance of third-party contractual relationships with
its distribution partners. Using diverse distribution channels is key in getting
goods to market. But what happens when a company's products find their way into channels outside its normal distribution cycles? The result can be measured in loss of revenue, increases in costs, and even damage to a company's products or reputation.
All of this can be a direct result of the fact that many companies rely
on self-reporting by their channel partners. Hence, they need to find the
appropriate information to stop the impact on their bottom line and effectively
test the accuracy and completeness of any self-reported information from other parties to satisfy good corporate governance demands.
One option is to develop a sound compliance program that addresses future
contract obligations. This can lead to recovering payments that may have been overlooked or misreported in the past.
An effective contract compliance program will contain mechanisms that
promote communication among business partners, gathering market information, receiving and analysing the information due under the respective agreements, holding regular compliance visits, and developing a structured approach for selecting a business partner for review.
As part of implementation of this program, the answers to the following
questions will help you learn more about how your partners self-report on
product distribution, bring transparency to the relationship and improve
internal controls for both parties:
Establishing a contract compliance program may uncover significant
findings, resulting in potential collections or savings. It may also help
increase the communication and understanding of contractual terms and obligations between business partners, thus leading to improved reporting processes.
While it is true that business relationships require trust, and that
trust is vital to the flow of commerce, it also is true that verification is
critical to maintaining trust. The process of verification as part of the
contract compliance program will help you to know your business partners well.