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Throwing Money Away: Why You Should Avoid Reactive Contract Management at All Costs

     

Running a business involves multitasking, prioritizing, and constantly revisiting how best to multitask and prioritize. More often than not, there simply aren't enough hours in a day,to get everything that they need to do done. Certain things get postponed to the next day or the next week or even the next month. Because of the constant juggle, people have a tendency to put off doing things that don't seem pressing in the immediate future.

 

This is particularly true when it comes to addressing contract matters because contracts tend to span a fairly significant period of time. As a result, the contract management process often takes a backseat and the management approach becomes reactive in nature. Unfortunately, reactive contract management can end up costing companies a lot of money. Here is why you should avoid reactive contract management at all costs:

Missing Important Dates and Opportunities

Missing important dates and opportunities is probably the most frequent problem companies encounter when they don't proactively manage their contract portfolios. Most contracts contain due dates and deadlines for key actions, such as renewal provisions, renegotiation periods, and product order changes, among many other things depending on the type of contracts your company has.
 
Failing to stay on top of what is happening with a contract and not knowing when something is due can cause companies to miss out on discounts and other potential financial incentives. Even if these seem like minor cost savings, these add up if it occurs regularly and across multiple contracts. However, by establishing an online contract repository and creating alerts for these important dates, companies will ensure that they receive an email reminding them to take the required action.

Paying for Duplicative Services

If a contract management team isn't on the same page, they may not realize when a contract portfolio becomes redundant or wasteful. For example, companies engaged in high volume contracting with multiple suppliers may end up double ordering supplies or contracting with more than one party for the same service.
 
Although this seems implausible, companies can lose a significant amount of money due to duplicative costs. And, it really isn't due to idiocy or carelessness, just sheer volume. In these instances, it is imperative for the contract management team to be proactive by delegating efficiently and communicating frequently. Otherwise, cost overruns are inevitable.  

Consequences for Non-Compliance

Missing out on cost savings may be the most frequent problem, but when a company fails to manage its contract portfolio proactively, the ensuing consequences due to non-compliance generally cost a company the most. It isn't possible to perform, at least not well, if required contract actions are not completed in a timely fashion.
 
Thus, whether a company fails to perform because of a complete oversight or only partially performs because of procrastination, it is possible that they will get hit with a fine or penalty of some sort, not to mention the reputational damage and strained relations that also impose lingering though perhaps less tangible costs. Rather than pay to rectify an avoidable breach, companies simply need to get their portfolio organized by utilizing a contract management service that offers practical features that help facilitate compliance.

Production or Service Interruptions

Companies that don't pay attention to their portfolios may end up with a complete disruption to their production line or service delivery. Contracts usually dictate when and how goods or services will be delivered and outline a schedule for the payment plan. As a result, if a company isn't familiar with these terms, they may not realize when trouble is brewing.
 
For example, if the contract management team doesn't realize that an anticipated delivery didn't arrive when it was due and it isn't until that item is actually needed for the next step that someone realizes what has happened, this is bound to create quite the headache. At that juncture, delays are usually unavoidable, and delays always end up costing money.
 
By adopting a proactive management approach, which involves paying attention, anticipating issues, and acting before things get out of hand, so many costly problems are avoidable.

 

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