The Importance of Effective Contract Management

What Does Contract Management Define?

Contract management encompasses a wide range of activities from creating well-drafted contracts to ensuring compliance, monitoring progress and spotlighting risks. If these processes aren’t underpinned by best practices and a centralised way of working, issues can quickly arise.

Streamlining collaboration between departments eases information bottlenecks and helps prevent costly errors like missing important renewal dates, which can impact revenue.

Definition

Contract management includes all processes of overseeing legally binding agreements, including their creation, execution and analysis to maximize operational performance and mitigate risks. Contracts play an integral role in every major business function, from governing relationships to pricing models and project specifications.

Effective contract management requires that you properly record and monitor all stipulated responsibilities, obligations, procedures, and agreements recorded in contracts. It also involves tracking any ambiguities or gaps that may occur during different stages of the contract lifecycle.

Contracts are the foundation of a company’s business operations, yet they are often mismanaged. Inefficient contract management exposes companies to financial risk and slows down critical business processes. Effective contract management is about more than just submitting contracts; it’s about illuminating the data behind them to save time and increase revenue.

Scope

Setting clear goals and defining a contract’s scope prior to execution reduces future disagreements. Flexibility for timelines and budget can also help prevent contracts from failing due to unforeseen events.

Contract management processes must also include the ability to evaluate and monitor contracts. This enables a company to identify and address issues before they become major problems.

Often, companies use a filing system to store and retrieve documents related to contracts. However, this system presents problems if it’s not integrated into an information system that analyzes and supports the company’s business. It’s difficult to find and retrieve contract data without a systematic process. Contract management software addresses these difficulties. This makes the software a valuable tool for supporting strategy, sales, performance optimization and customer/supplier relationships.

Processes

The processes involved in contract management define how a company creates and manages contracts for customers, vendors and freelancers. It also provides the framework for identifying and addressing any potential contract issues.

These include generating contract terms that optimize revenue by maximizing cross-selling and upselling opportunities. Negotiating with prospects and leads, requesting internal approvals and reconciling differences are all included in the process.

Contract management also includes establishing long-term supplier relationships and evaluating the performance of suppliers against contractual obligations and risk management requirements. This is a time-consuming process that can be made much more efficient by using contract management software. Finally, the process includes filing contracts in a system that allows them to be quickly located. This could be as simple as filing them alphabetically by customer name.

Tools

Contract management tools enable users to draft contracts, collaborate with others, e-sign contracts, and track the status of their progress. They also help companies identify greater cost-saving options by promoting spend visibility. These tools are usually centralized in a digital repository, which improves security and allows users to control who has access to what documents.

The right contract management software is vital to an organization’s success. It should have a user-friendly interface to ensure a smooth transition and minimize a learning curve. It should also be scalable to meet the needs of different departments, from sales to legal and finance. Effective contract management reduces risk, enhances compliance, and boosts company performance. In addition, it frees legal counsel and other legal ops teams from rote, time-consuming work to become strategic business partners.

Benefits

Contract management can save time and money across an organization. It can also improve the quality of negotiated outcomes and help businesses realize more value from their suppliers, employees, and internal resources.

Having a central repository for all contracts allows transparency and a single source of truth to be established. This can mitigate disagreements about what was agreed to and when. It also facilitates building long-term relationships with suppliers that lead to valuable synergies.

The process of contract management also helps to track supplier performance, allowing you to find opportunities for reducing maverick spending by increasing spend visibility. Additionally, it notifies key personnel when contract expiration dates are close by to enable renegotiation or renewal discussions. Any new process or technology for managing contracts should work alongside existing systems rather than replace them.

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