Six Hurdles to Vendor Contract Management and How to Overcome Them
Even in the best of times, managing hundreds of active vendor agreements can be a nightmare for understaffed vendor management and legal teams. From navigating third-party templates to find answers to important questions, to trying to track deadlines, payment terms, and other key data in spreadsheets, dealing with vendor agreements can be a hassle.
However, it doesn’t have to be a struggle. Procurement managers, supply chain professionals, and in-house counsel can tackle these challenges head-on with contract intelligence — the application of artificial intelligence (AI) to contract management. With AI, you can leverage the data hidden in your contracts to navigate many of the pitfalls of outsourcing.
Here are six common obstacles to effective vendor contract management that keep business leaders up at night, and tips on how a contract intelligence platform can help you get past them.
1. Missing important dates and deadlines
How many times have you missed a contract termination deadline? If your organization has hundreds of vendor contracts in place, that means you also have hundreds of renewal and termination deadlines to track. Many vendor contracts automatically renew by default unless the buyer terminates the agreement before the deadline. In addition, B2B vendor agreements are often set for terms lasting multiple years. That means that businesses need to keep track of hundreds or even thousands of renewal and termination deadlines that were set years in advance.
Perhaps your circumstances have changed since you signed up for a particular vendor’s services. Maybe they’re no longer the ideal fit for your organization’s needs, or maybe you no longer need those services at all. But if you lose track of the auto-renewal deadline and miss it, you may be stuck paying tens of thousands of dollars for something you don’t need or want.
So how do you keep that from happening?
Contract management software with strong contract analytics and reporting capabilities can help you keep track of these vital dates. A platform powered by true AI can quickly review all of the vendor contracts your business has in place. Software that has been pre-trained on a wide range of common contract and clause types will be able to recognize standard provisions such as renewal deadlines without any special preparation. Instead of having employees search for, open, and read documents one by one to try to catch up with all of your deadlines, and then tracking those deadlines manually in a spreadsheet, you can rely on an automated system that will do it for you — so you can focus instead on selecting the best vendors and negotiating the best deal for your business.
2. Data privacy and cybersecurity events
Another issue that’s top of mind for every contract manager is keeping sensitive information secure — both the company’s, and that of its customers or clients. Increasingly stringent data privacy regulations are emerging in a range of jurisdictions from the local to the supranational level, and if you do business in any of those regions, then you need to comply with them. Fines for failure to do so can be hefty, and liability isn’t limited to your own data breaches. If you share sensitive customer data with a business partner and that partner doesn’t take adequate measures to protect it or to notify customers of a breach, you may be held liable.
Adopting a contract management platform with industry-standard cybersecurity built in can assist you in protecting your own documents. Role-based access helps to ensure that only the people who need to see a particular document can actually see it. When you need to search for vital terms including breach notice requirements, indemnity, limitations on liability, and language related to regulations and standards such as Schrems II, AI can eliminate hours spent combing through documents one at a time so you can promptly identify all of your obligations and get to work on fulfilling them. Machine learning and natural language processing algorithms can also help you to create new templates based on your preferred language, whether it’s a standard clause that you already have in place throughout your existing agreements, or a new provision that needs to replace outdated language in response to changing regulations.
3. Supply chain disruptions
A ship gets stuck in a major canal, blocking passage for hundreds of other ships. The cost of shipping containers rises as inventories dry up during a pandemic. Ongoing shortages of computer chips limit production of everything from cars to video game consoles. Supply chain disruptions potentially affect every type of business. It’s not just manufacturers who need to be ready — businesses from retailers to software providers to restaurants, as we have seen recently, can be affected by shortages and delays, whether it’s something they pass on to customers (e.g,. a burger place provides ketchup packets to diners), something they need customers to buy before customers can buy their products (gamers need a video game console before they can buy games published for that console), or equipment that the business’s employees use.
You can’t prevent every disruption, but you can be prepared when they happen. The ability to quickly review any and all of your vendor agreements on short notice will better equip you to handle emergencies. A good contract management platform will let you create custom tags for provisions that are unique to your business or your industry and apply them in bulk. Whether you need to review a construction company’s debris removal obligations, track your relationships with women- and minority-owned businesses, or determine your remedies in the event of a rate change or a partial shipment, AI-powered document tagging and searches can help you do it faster.
4. Inefficient workflows and time-consuming processes
According to the World Commerce & Contracting Association, 50% of buy-side teams cite improving internal processes as one of their greatest challenges, and 37% cite operational workload. When contracts and drafts are scattered across various hard drives and email inboxes, it can be difficult just to keep track of version history, let alone to define clear processes regarding contract review and approval.
A central repository with good workflow tools can help by ensuring that all parties and team members are working from the same version of the document at any given time. Pre-trained AI and seamless integrations with external storage solutions let you get started with better contract analytics and workflow tools right away, without waiting for a time-consuming migration or the help of the IT department or a team of data scientists. With all of your contracts in one place, you eliminate the need to copy, transfer, or manually save files, or to waste time confirming which version of a document the other party used as the basis for a redline.
Good contract AI will be able to recognize dozens of common provisions and clause types out of the box, speeding up your review of third-party paper by directing you right to the language you need to see. A true contract intelligence platform can do that even if the clause isn’t labeled the way you’d expect, by assessing the context of each clause in the document instead of simply looking for headings. A contract management platform with machine learning and natural language processing capabilities will also be able to quickly review the language in your existing agreements and suggest templates for new clauses and contracts based on what has already worked for your business in the past, saving even more valuable time for your team.
Improving processes isn’t just about workflow features, however. Contract analytics powered by AI reduce the time you spend doing rote review work (or the amount you spend outsourcing it), giving you more time for analysis, negotiation, and strategic planning. Automated dashboards can further streamline data gathering and presentation, enabling legal teams and contract managers to educate business executives on what contracts the business currently has in place, and with whom.
5. Disparate pricing and payment terms, and unclaimed discounts
Buyers often negotiate special payment terms with sellers. Enforcing those terms, however, is another matter. If a vendor offers a discount and the buyer fails to claim that discount, then the time spent negotiating it was wasted. Staying on top of all of the financial terms of the business’s vendor agreements — or failing to do so — has a clear, direct impact on the bottom line.
AI-powered, automated dashboards and reports can take the hassle out of identifying and tracking those dollar-saving terms and entitlements. With that information at your fingertips, you can share early payment discounts and rebate information with the finance team, and collaborate across departments or offices to analyze payment terms.
6. Redundant vendors and unused services
By some estimates, up to 80% of all business invoices are generated through undisciplined buying processes involving uncontrolled spend, poor compliance, and low benefit realization, even in large businesses with dedicated procurement teams. Two different offices in the same organization might inadvertently sign up for the same services from two different vendors, for example, not realizing that they could save money by selecting one vendor to serve both offices.
This is another area where a central repository can help. With all of your vendor agreements in one place, you can automatically find duplicates and group related documents by counterparty, including parent and child contracts. If your comparison shows that some of your agreements contain less favorable terms than the others your business has negotiated, a platform with intuitive workflow tools will empower you to promptly draft and execute new language to re-paper the contracts that contain sub-optimal terms.
Contract intelligence helps you streamline your vendor contract management by establishing an integrated central repository, defining consistent internal processes, and gleaning timely insights based on the data hidden in your vendor agreements.
Ready to learn more about how businesses can get more value out of their vendor contracts while saving time? Download our white paper, Six Best Practices to Maximize Value from Vendor Contracts.
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