Contract Management Best Practices for 2021
Do contracts apply to every sphere of business? It would appear so. Contracts are the DNA of business itself, intrinsic to the very concept of free-market capitalism.
Janitorial companies use contracts to agree to supply cleaning services to offices, and aerospace corporations use contracts in their agreements to provide high-tech fighter jets to governments. In between, there’s everything else, from franchise retail to multinational corporations.
In recent years, spurred on by the growth of e-commerce, B2B commerce, and increasingly sophisticated technology, contract management has come into sharper focus as one of the crucial aspects of maintaining a healthy business.
Every company hopes to grow and become more profitable, which makes automation necessary when expanding a contract portfolio. Managing the contract life-cycle has become a complex job, where mistakes in company contract management systems cost an estimated 9% of global revenue.
Conducting an Audit for Effective Contract Management
Any company needs to ask these questions in order to evaluate their internal contract handling process:
Are contracts transparent to the team?
The biggest bottleneck to executive productivity lies in the speed of accessing contract information. Contracts are long and written in legal boilerplate for the most part. Reviewing them manually can take time and cost companies precious opportunities. Yet the information in them is crucial to many executive-level decisions.
Contract management software helps here, but many companies stop at simply scanning them into a DropBox account. Some take a further step in cloud-accessibility and integrate contract data entry into their project management process. A growing number are turning to automated contract management software, which is the best possible solution as this software automatically scans and data-mines contracts, flagging terms for easy data accessibility.
How efficient is the contract drafting process?
From the discovery of an opportunity to negotiating terms between parties to drafting and signing the contract, the intake process for new contracts needs to be as friction-free as possible. There is nothing so painful as a lost opportunity because your contract onboarding process wasn't fast enough.
One should also consider the approval process. How many team members have to go over the contract and sign off on it? Usually, at least the executive and legal branches want to have a look, and typically other departments like procurement, accounting, or manufacturing will be concerned as well. Validation of contracts for legal regulation is another step, necessary in fields like the medical industry or defense contractors.
How are contracts supervised to see that they are fulfilled?
Contracts, once active, need to be monitored for compliance on the part of both parties. Deadlines, terms, renewal dates, compliance, dispute resolution, and termination conditions all require company vigilance, as they are important factors to be aware of. Ideally, a company would have a team devoted to the purpose of contract compliance reviews, checking daily, or at least making the data available as a calendar of obligations, project schedules, and other relevant timelines.
Contract Management Software Infrastructure
Office technology has made broad advances in recent years so that new innovations in contract management solutions have re-shaped the business climate. In particular, automated contract management has taken what used to be a weeks-long process of contract review and reduced it to mere seconds.
With an automated contract management system, there is no need for manual review and data entry of existing contracts. Instead, the software is trained with artificial intelligence to identify key legal terms and clauses, including named parties, dollar amounts, dates, provisions, and forfeiture conditions. This automated data entry process can then stream the data to databases, email, project management software, analysis software, or anywhere else.
This contract management ecosystem is the nerve center of a company. A business with a good strategy in contract management solutions can run low to the ground, fast and agile, able to outpace the competition.
Contract Management Outcomes
With an efficient contract management system in place, a company should be able to perform the following functions at the top of its abilities:
- Risk identification and mitigation - Living up to the letter of their obligations
- Cost reduction - Saving money on contract audits themselves, and being able to bargain for better contracts after using this information
- Approval streamlining - Being able to ship a contract past accounting, legal, management, and back all in the space of a phone call
- Vendor management - Keeping the suppliers happy
- Project planning - Making sure the company meets the goals laid out in contracts
- Legal protection - making sure the other party lives up to their obligations, and what to do about it if that's not happening
Once this system is in place, a company just might see itself picking up that extra 9%. At the very least, the rest of the company can run far more smoothly, now that the main engine is tuned up!
Contract Performance and Building Upon a Solid Foundation
From day one Implementing best management practices regardless of the different types of contracts is simply good contract lifecycle management and essential to other areas such as the procurement process.
Technological advances especially in AI and machine learning is allowing businesses to automate contract management and store data in a cloud based centralized repository. This effectively eliminates human error and heavily mitigates the risks and oversight associated with such errors such as untracked contract expirations.
If you are serious about improving contract management then why not contact Evisort today to arrange a demo you can also read our guide to contract management templates here.
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