Set it and forget it doesn’t work with commercial contracts. Businesses need a quality contract management process in place to help ensure their operations run smoothly. Every stage of a contract’s lifecycle should be overseen for compliance with its terms. Best practices provide clear benchmarks for a successful contract management process.
What Is Contract Management?
Contract management means overseeing every aspect of a contract, from conception to execution and all the way to renewal. Best practices are used to ensure quality at every stage, which leads to better-managed contracts and the ability to predict and mitigate contract risk.
As you know, contracts form binding agreements and establish duties that parties must execute. As such, a business that does not know how to manage contracts successfully risks finding itself in breach of contract or winding up in a disadvantaged position.
Why Is It Worth Improving a Contract Management Process?
Improving your contract management process will do nothing but help your business succeed. One of the main benefits of improving your contract management process is improved contract risk management. Best contract management processes help prevent businesses from writing themselves into risky situations with poorly negotiated or drafted contracts. Improving the contract management process also gives you the peace of mind you need to conduct business formation.
What Can a Poor Contract Management Strategy Lead to?
A poor contract management strategy can easily lead to liability and loss of value for a company. A well-thought-out and executed contract management process is necessary these days to keep up with the speed of business. Older, manual contract management processes don’t allow businesses the agility they need to be successful in the modern world.
How-To (Contract Management): 10 Steps to Improve the Contract Management Process
If your business is having trouble in the contract process, you can learn how to improve contract management and eliminate many, if not all, of the problems you are running into. The following steps will teach you how to manage contracts effectively and improve your company's overall contract game.
1. Review Your Current Contract Management Process Cycle and Set Goals
Take a close look at your current contract lifecycle and your contract management practices. You should be able to identify areas that are causing problems and take appropriate action. The information this review gives you will allow you to employ the proper measures to handle the issues you find.
Setting goals based on your problem-solving strategies will give you benchmarks to shoot for. For example, you might determine that you can significantly lower costs at various stages of the contract cycle. Setting specific cost targets will put you on the road to your cost-reduction targets.
2. Define Roles and Responsibilities
You want to make sure that every person working in the contract cycle understands their role and the scope of their responsibilities. No matter how small a part a person plays, they should know exactly what is required of them and how to act.
3. Develop a Procedure to Map Out Your Contracting Process
Before jumping into improving your contract management process, you will want to create a procedure map that plots every stage of your company's contracting process. With this map, you will have a powerful visual representation of your contract cycle. It will allow you to better maximize efficiency and minimize mistakes. It will also help you develop an effective contract management strategy that works just right for your business.
4. Set Key Performance Indicators
Key performance indicators (KPIs) are essential for evaluating contract performance throughout a contract’s lifecycle. With the appropriate KPIs in place, you will see when and potentially why important contractual duties are not being met.
5. Use Standardized Contract Creation
Standardization in contract creation can lead to efficiency in the contract process. Instead of having to negotiate and review every contract term every time, your company's legal representative can standardize certain terms for pre-agreement and save time. Doing so will allow them to focus on important specific contract language that needs special attention.
6. Automate Manual Contract Communications
Are you still using the post office and emails for the bulk of your contract communications? If so, your business is likely running less efficiently than it could. Instead of using mail and email, consider switching to a cloud-based repository where everything pertaining to the contract is in one spot. Users get immediate and simultaneous access to important documents, communicate with each other, and make contract changes in real time.
7. Keep a Close Watch on Finances and Metrics
Cost-saving efforts and spending guidelines are necessary to keep your business lean and effective. Metrics will guide your company and put everyone on the same page regarding your company's financial and cost-saving goals. Your financial executives and managers will be particularly helpful in creating and monitoring these metrics.
8. Implement Contract Management Software
You might not be using pen and paper anymore, but this does not mean you have capable contract management software. With a powerful contract management software option, you’ll save time through automation and have access to the tools you need to optimize your contracts’ lifecycle.
9. Resolve Disputes Promptly
Contract disputes are common but should never be left to fester. By implementing an effective approach to dispute resolution, your business won’t get bogged down by problems and can move forward past issues that may arise.
10. Review and Improve Your Contract Management Process Recurrently
If your contract management process is working for your business, congratulations. To ensure that things continue to flow smoothly, you must regularly review the process you have in place and make improvements as a course of business. No matter how smoothly your process is, constant tweaking is always necessary and helpful.
Common Contract Management Risk Types
Contracts bring in revenue and profits. However, they can also lead to financial loss for your business, even in the face of due diligence. Contract management of risks helps avoid those incidents that cost you money, such as missed dates of performance, labor problems, and other issues.
The danger of contract security risks can never be overstated. As stated, contracts create binding obligations. They also set forth the terms of dispute resolution. If the terms of your contracts aren’t secure from unauthorized changes, problems will arise. Also, sensitive information contained in contracts should be safe from unauthorized access to protect your company’s secrets.
All manner of legal risks can be reduced or eliminated when you learn how to mitigate contract risks. Breach-of-contract issues can be spotted and nipped in the bud before they become full-blown legal disputes. And regulatory and legal compliance problems, such as running afoul with OSHA or other governmental agencies, can become nonexistent with capable contract management.
Brand risk is potential damage to your company's public image due to negative issues you might face. These issues typically include legal and financial snafus that may decrease public confidence in your brand. Contract management will help you keep your image safe by dealing with problems early on or avoiding them altogether.
Wondering How to Identify Risks in Your Contracts?
You can’t effectively manage and mitigate contract risks without knowing what they are. The nature of each contract will determine the risks. By asking yourself a few questions, you can pinpoint potentially troublesome aspects of your contracts and their cycles.
Questions to ask yourself to deal with contract risks include:
- Which contracts expose your business to exceptional or numerous risks?
- What stages of the contract management process create risks?
- What are the governmental compliance risks your business is facing?
- What regional and geographical regulatory risks might you be facing?
Mitigating Contract Risks
Risks are ever present in the contract cycle and represent ongoing contract management challenges — and practical solutions can be hard to find. However, these challenges can be mitigated with the right tools and contract management process.
Use Encryption to Protect Contract Data
No matter what stage of the contract process, your documents should always be protected by quality encryption software. Whether the documents are at rest or in transit, they merit the highest protection available for the safety of your business.
Eliminate Missed Milestones and Obligations Using Notifications and Alerts
It’s easy to miss milestones or fail to discharge obligations in any business, especially those that are busy. Fortunately, notifications and alerts are an easy, effective way to make sure important dates and duties stay on your company's radar.
Control Access with Role-Based Security
You can control access to sensitive documents with role-based security. Only authorized individuals can view the documents for which they have permission. Additionally, creating and editing company documents can also be restricted with role-based security protocols in place.
Maintain Control over Contract Versions
A contract’s lifecycle may see dozens of versions of a contract before its finalization. Suppose that you have multiple users making important changes. In that case, you will need a sturdy contract management process online to maintain control over the many updates and changes to avoid parties relying on outdated contract terms.
Use Automated Workflows to Enforce Business Processes
One of the surest ways to enforce your business processes is to automate your workflows. When tasks are done the same way by everyone involved, you get a smoother contract lifecycle with fewer errors and higher levels of efficiency.
Use E-Signatures to Secure Approvals
Electronic signatures are now a widely accepted standard of business. You can streamline your contract completion process by using e-signatures for all of your agreements. And they are safe and enforceable in all forms of business.
Improve Your Contract Management Process
Your path to better contracts and thus, better business begins with learning how to manage contracts effectively. From leases to service contracts, a strong contract management process will keep your business dealings airtight and insulate your business from the common risks and liabilities that come from mistakes.
Our clients regularly rely on experience and know-how for the management of their contracts, and so can you. Contact us for help with your contract management process and learn how a Denver business attorney from Sequoia Legal can greatly benefit your business.