Every modern business must deal with contracts. From internal employment contracts to external contracts with vendors and clients, they are an integral part of the operation of any business.
Yet for all of the importance that contracts hold to companies, in most cases, contract management is often an afterthought — if it’s even considered at all. Many business managers look at contracts as something that lawyers handle, and that usually has very little to do with the day-to-day operations of the company. That’s why, more often than not, once contracts are signed, they are filed away, either in a physical filing cabinet or in an electronic database, never to be looked at again, unless there is an issue.
Unfortunately, this “out of sight, out of mind” approach to the contract management process often means missed milestones and opportunities — not to mention, a good chance that a business could be out of compliance with federal and industry guidelines related to contract management. Contracting, and maintaining business contracts, is actually a vital component when evaluating the success of a business arrangement.
The question, then, is how to best manage contracts to ensure the greatest possible benefit to the company — and avoid losses due to breach of contract, missed milestones, or noncompliance fines and sanctions. Doing so requires an effective contract lifecycle management process, one that takes a more dynamic approach to contract management than simply storing the documents.
Many people think of contract management as an organized approach to storing and maintaining contracts. Often, the perception of contract management software is that it is essentially an electronic filing cabinet. While that might be true to an extent, an effective contract management process is much more than simply being able to locate a contract once it’s been signed.
A truly effective contract management process is one that supports all aspects of contract development and maintenance. It supports the entire lifecycle of the contract, including any and all of the processes that contribute, create, or use the data contained within the contracts. Therefore, any software tools used in this process must be developed with each of these steps in mind, creating a cohesive and organized system that not only allows a business to store contracts, but ensure that every aspect of the contract is maintained and that important milestones are met and opportunities are leveraged.
Research from Gartner revealed that at least 60 percent of supplier contracts are automatically renewed — often at higher rates or less favorable terms for the buyer — because the buyer failed to contact the supplier to renegotiate or cancel the contract within the stated terms. Of those renewed contracts, half are automatically renewed multiple times.
With the right contract management in place, such automatic renewals would not take place, as buyers would be aware of contract dates and have the chance to renegotiate the terms. A better contract management process also protects the company from losses stemming from terminated contracts, if the supplier charges termination fees or other damages. From a supplier standpoint, contract management allows you to build stronger relationships with buyers, and leverage opportunities to upsell.
In short, the best contract processes ensure that nothing is left to chance.
So, then, what are the key aspects of an excellent contract management process? Ideally, the process needs to include procedures that manage contracts at every step, including negotiation, execution, performance, modification, and termination.
More specifically, some of the more important activities in the contract management process include:
An efficient and effective contract lifecycle management process can be a major contributor to meeting your goals for revenue growth and productivity. To learn more how Exari Contracts™ may just be the best solution, visit our website or contact us today and request a demo.