Contract management involves analyzing to determine whether or not contracts present a growth or risk issue. The terms of your contracts can affect your profitability. A Poor contract management system is responsible for losing around 9 percent of an organization’s annual income, as stated by World Commerce & Contracting. Implementing best practices for contract management allows legal teams to increase the effectiveness of their contractual processes.
Here are some ways in which your company might improve its effectiveness when it comes to contracting. Please continue reading to learn about the best practices for contract administration and the rationale for using them.
Contract management?
The process from the creation of the contract to its actual execution is known as contract management. Contracts are a crucial piece of paper for any organization. Your company’s connections with partners, vendors, customers, workers, and independent contractors are all governed by the agreement.
Building a structure to prevent contracts from delaying corporate operations is one of the components of effective contract management. Other components include monitoring contracts to ensure that they comply with the responsibilities and standards outlined in the contract and that important deadlines, such as those for contract renewal, are not missed.
Contract management’s advantages
Efficiencies are improved.
Automating repetitive tasks and boosting the rate at which contracts are produced can be accomplished by configuring workflows using standard clauses for recurring contracts. This can be done with the help of automation. The handling of contracts within your company will get better.
Risk-proof
You can monitor the execution of the contract when you have effective contract management. This allows you to ensure that your company meets all deadlines, delivery specifications, and payment terms.
Your agreements contain strictly secret information. Contract management avoids unauthorized access. Contracts already in place can have any additional regulations readily incorporated into them.
Cost-cutting
More efficient contract management saves time and money by reducing the need for outside legal assistance. When you maximize the potential of contract renewal possibilities, whether you choose to keep an agreement or let it expire, you cut costs and increase profits.
mutually beneficial collaborations
When legal action is taken, the cost of breaching a contract goes beyond monetary compensation. Damage to one’s reputation can discourage potential romantic partners. A successful administration of contracts enables one to fulfill obligations and cultivate long-term business connections.
Invoicing
Contracts do more than listing the parties’ rights and responsibilities. Articles that are dynamic and include a lot of info. You can easily extract data from your contracts using contract reporting, which will help you improve the establishment, negotiation, execution, and management of your contracts. When used to monitor active contracts, contract amounts, milestones, and crucial deadlines, spreadsheets expose users to the possibility of making errors.
Visibility of suppliers is increased
Because most businesses in the modern world rely on suppliers to provide them with goods and services, suppliers have become an integral part of most organizations. Among the many benefits of contract management are the control of supplier risk, the monitoring of supplier performance in line with the terms of the contract, and the tracking of the suppliers themselves. In addition, it serves as a mechanism for establishing long-term, mutually beneficial partnerships with the company’s suppliers.
Poor contract management’s repercussions
Time and money are both lost due to inefficient administration of contracts.
Revenue loss
Conversations that take too long, waiting too long for approval, and missing deadlines cost money. The inefficiency of corporations’ contracting processes costs them 9 percent of their annual sales. According to a separate survey, fifty percent of executives in the business said that ineffective contractual practices had cost them business.
If you do not have a system in place to automatically monitor and get reminders about impending deadlines, you put yourself in jeopardy of missing those deadlines. If your firm misses a deadline, it could put it at risk of incurring obligations, such as in the case of using licensed intellectual property outside of the covered period. If staff members use spreadsheets to keep track of deadlines, there is a chance that some contract deadlines will be missed.
Lack of effective communication and collaboration
Cooperation both within and outside of the organization is required to ensure the effective management of contracts. An email can confuse the thread of conversations when it is used as the primary mode of communication. It’s possible that the parties will become confused about the redlining modifications as the negotiations go. People can rapidly and effectively deal with a multitude of contract variations.
Final thoughts
If you want your company’s contracting efficiency to grow at the same rate as your business, you must adhere to the industry’s best practices for contract management. Expanding your contracting capacity is no longer a questionable option in today’s fast-paced business environment, given the rising regulatory emphasis placed on businesses. In contrast, it is an absolute requirement.