Best Practices to Improve Your Business's Contract Management
Contract Management Software
Effective contract management might be companies’ greatest performance tool: according to a review by McKinsey, most businesses have a vast majority of their annual revenues tied to contracts with suppliers and vendors (in some industries – specifically, the utilities, aerospace and defense, and food manufacturing sectors – that number is as high as 90 percent).
As such, it follows that following anything other than proven best practices for contract management can take a toll on companies’ bottom line. The research backs this up: that same McKinsey review also found that suboptimal contract terms and conditions combined with a lack of effective contract management can erode annual revenues by as much as nine percent annually.
Contract management is no easy task: contract managers are responsible for supporting the planning, drafting, negotiation, and execution of high volumes of agreements (for large companies, portfolios may consist of tens or even hundreds of thousands of contracts), working with numerous internal and external stakeholders to ensure everything runs smoothly throughout the full contract lifecycle. But following these best practices can help to improve the contract management process – and potentially also increase profitability – at every stage.
Organize and store your contracts in an online repository
If there’s one thing most businesses have in common about how they manage contracts, it’s that most don’t have a clear path for what to do with their agreements after they’re signed. Sixty percent of organizations use email to manage to manage their contracts, and a similar rate uses Excel, two solutions which are extremely limited as far as access, visibility, security, and other essential contract needs. Meanwhile, 71 percent of companies can’t even find at least one-tenth of their existing contracts.
The first and most important step is having a holistic plan for keeping these critical documents centralized and organized. An online contract repository is the foundation for effective contract management, ensuring that contracts are easily accessible to those who require the information within and allowing organizations to monitor the performance of the contracts (and refine and improve the contracting process) at both the micro and macro levels. Unlike manual storage and organization methods, migrating all of your contracts to an online repository allows you to locate the precise information you need in seconds. Furthermore, with the right contract management software solution, you can also improve the security of the sensitive information contained in your documents – a key compliance requirement in some industries – through features such as access controls and encryption.
Automate as much as possible
Between drafting new agreements, pulling filed-away contracts for other stakeholders, keeping on top of countless milestones, and numerous other tasks, multiplied by the full volume of agreements for which you’re responsible, the workload (and resulting bottlenecks) of contract management can often feel insurmountable. But once documents have been migrated to a central repository, it becomes far easier to perform many of the crucial tasks of contract management.
By leveraging technology, contract managers can dramatically improve both the efficiency and effectiveness of key parts of their role. Rather than setting manual reminders (and also having to remind stakeholders) of important contract-related dates and tasks, you can embed these prompts within the contracts themselves so that there is no additional effort required to stay on top of your responsibilities; you can put an end to having to pull contracts for others by enabling permission-based user roles, which allow authorized individuals to access specific contracts on a self-serve basis; you can even leverage AI and other technologies to draft better contracts. In short, automation can cut much of the “busy work” of contract management, allowing you to focus on driving greater quality and better results.
Have a performance monitoring plan
It’s all too common for companies to file away contracts after they are signed and forget about them until either a problem arises or the agreement comes up for renewal – if even then. But all too often, unfulfilled or unheeded contract terms can result in a slow erosion of benefits and profits. This value leakage is something you may not be aware of until it’s too late to course correct, and without a performance monitoring plan, you’ll have no way of knowing whether a contract is delivering as it should or whether it’s at risk of underperforming.
It’s important to have a clear picture throughout the contract lifecycle of how agreements are performing: whether you’re getting the goods or services contracted for (or delivering the goods and services as promised, without risk of penalty), and at the price and terms that were defined under your agreement. You can ensure this by establishing a performance monitoring plan at the outset. This plan should include the key performance indicators that will measure the health of your agreement and how frequently they need to be assessed. Similar types of contracts will likely have similar performance-monitoring criteria, so rather than establishing a new plan at the outset of each new contract, you’ll find you can establish processes to make this aspect of contract management more automatic and manageable. Furthermore, the tools and features of contract management software – specifically customizable automated report creation – can dramatically reduce the burden and manual work of this vital task.
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