As businesses grow, they stockpile more and more contracts. In the long run, contract owners start tracking important dates in outlook or spreadsheet, so they don’t forget them. But this outmoded way of managing contracts slowly becomes unmanageably costly and risky.
So, how do you know it’s time to consider a more purpose-built solution? Well, before going further into the topic, let’s first define what content management is and why it’s so necessary for running a business:
What is Contract Management?
Contract management is the supervision of all those contracts that have been established between the company and its partners, employees, customers, and vendors. Contract management also consists of negotiations needed to make any contract effective and ensuring that it is being implemented or executed flawlessly.
In more precise terms, Contract management is a process that involves contract creation, execution, and analysis. The main purpose of contract management is to improve the business’s wholesome commercial, financial and operational performance with no risk involved. Contract Lifecycle Management is an essential task within a business and it is important that you manage your contracts effectively in order to avoid any unforeseen issues
Businesses face an ever-increasing amount of pressure to improve performance and reduce costs. Contract management can be a very time-consuming element of business, which facilitates the need for an automated and effective contract management system.
The Nitty-gritty of Contract Management
When two businesses want to do business together, a contract indicates the activities entered into by both business and the conditions through which they’ll each fulfill their parts of the agreement. Contracts substantially affect business profitability because of the emphasis on expenses and revenue.
When a contract is poorly formulated, a business could lose a considerable amount of money over small details they lacked the resources to spot. Effective contract management can, in the long run, build a strong business relationship and pave the way to more profitability, but only when managed correctly.
Here are five telltale signs your business needs a contract management system:
Time Spent Tracing and Refiling Contracts
If your employees have to spend a lot of time searching for contracts, not having a good contract management system is costing you a lot of money. This adds up fast. Just a few hours wasted could pay for a professional, automated solution or at least invest some time in preparing a contract management spreadsheet.
Costly Unintentional IT Maintenance Renewals
IT audits frequently find that businesses pay a considerable amount of money in maintenance and contract renewals that are unnecessary. If you’ve ever paid for software or hardware maintenance that you no longer use, this is a sign you need a contract management system. Normally, an automated contract management system more than pays for itself by notifying all parties about the renewal of a maintenance agreement that needs to be canceled.
Missed Cost Reduction
A contract management system identifies multiple contracts your business might have with the same vendor. By consolidating the contracts, businesses can save up to 30% on a volume discount. The less effective a company is at managing its contracts, the fewer contracts it can take on. This limits the company’s potential for growth and makes it more difficult to procure further contracts.
Financial Penalties and Compliance Risk
Most businesses operate in controlled environments where infractions carry significant financial penalties. If your business is in a controlled marketplace, getting a contract management system in place early is important.
Without being able to manage contractual compliance, businesses face significant risk in terms of financial penalties, and even criminal charges. Businesses cannot make out where, or even what laws and regulations exist within their contracts unless they have a good contract management solution.
As a company grows, so does the number of individuals executing contracts and the storage locations for those contracts. Though building a custom solution or purchasing a contract management software can cost money and take up significant IT time, the cost of not having a contract management solution in place might be much higher.
Elements of Successful Contract Management
It is not enough that a business has experts in place to deal with contract management. Workers must be augmented with the presence of software companions and processes to satisfy increasing analytical and compliance requirements. When a contract management strategy is successfully implemented, businesses can expect to see:
- The business encounters no contract surprises or disputes
- The anticipated financial returns and business benefits are being realized
- The delivery of services is satisfactory to both parties
- The supplier is responsive and cooperative to the business’s needs
Real-time visibility of your business contract is the crucial step to handling all the complicated processes and decisions regarding the future of these agreements. Without using a contract management system, it’ll be impossible for you to accurately come up with an assessment as to where your business currently stands or the best decisions that you can make in the future.
The best thing about contract management systems is that they have worked with numerous respected businesses. These systems can enhance or improve old systems. If you’re tired of making your business tied up with a previous deal because you forgot to cancel your acquisition, then it’s time you got a feature-rich system that can address the whole contract lifecycle using a flexible, powerful and easy to use functionality.
While the tradition is usually to manage contracts manually through file and folder cabinet storage, the practice is riddled with inadequacies that can only reduce a business’s overall efficiency. Integration with an automated contract management system will help automate many processes associated with managing contracts, as a result of creating more value for businesses.