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Glossary

What are transaction costs?

Transaction costs are the costs of making an economic exchange beyond the price itself, such as searching, negotiating, contracting, monitoring, resolving disputes and after sales service.

Schedule a Demo All Glossary Terms

What the term means

Economist Oliver Williamson described transaction costs as the costs of running an economic system. Decision makers weigh them alongside production costs when they set strategy, for example when deciding whether to make something in house or buy it from a supplier.

Types of transaction costs

  • Search and information. finding suppliers and comparing offers.
  • Bargaining and contracting. negotiating, drafting and approving the agreement.
  • Monitoring and enforcement. checking delivery, quality, invoices and obligations.
  • Change and dispute. amending plans, resolving disagreements and after sales service.

Why it matters in procurement

A low price can hide high transaction costs: a supplier that needs constant chasing, invoices that need manual correction or contracts that take months to agree. Total cost of ownership includes these costs, and reducing them is a real saving even when the price does not change.

How Aavenir reduces them

The Aavenir intelligence platform cuts the cost of each step around the contract: Aavenir AI reviews drafts in Contractflow, scores bids in RFPflow, checks obligation evidence in Obligationflow and matches invoices in Invoiceflow, with a person approving every AI action.

Keep reading

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Frequently asked questions (FAQ)

Common questions

What are examples of transaction costs?

Time spent finding and vetting suppliers, legal fees for negotiating contracts, staff time chasing deliveries, correcting invoices and resolving disputes, and bank or payment fees. Read about acquisition cost.

Can transaction costs be eliminated?

Not entirely, but they can be reduced through standard contracts, clear processes, automation of routine checks and long term relationships with reliable suppliers. Every step done once and right is a cost avoided. See the Aavenir platform.

How do transaction costs affect make or buy decisions?

If finding, contracting and monitoring a supplier costs more than the saving from buying outside, it may be cheaper to do the work in house. The comparison should include these costs. Read about should cost analysis.

Have a question we have not answered? Ask the Expert

Schedule a demo

See your contracts run on one record.

  • 1 A 30 minute walkthrough Built around your team, whether that is procurement, legal, IT or finance.
  • 2 Your contracts, not ours Bring a few sample agreements and watch Aavenir AI extract and review them.
  • 3 ServiceNow or standalone We show the deployment that fits the systems you already run.

Prefer to talk first? Contact the team.