The larger the business, the more difficult it is to have full control and a proper overview over all the agreements. More people, locations, and departments all contribute to increasing complexity. Contracts are becoming harder to find and, in the worst case, forgotten. Among the consequences is that unnecessary costs build up quickly - and reduce profitability.
Effective contract management is important for any business. When the business has clear routines for registering and handling contracts, they also have better control over resources, costs and cash flow.
WHERE SHOULD YOU START?
We recommend that you follow these steps to systematize contract management and achieve savings in many areas:
1. Get an overview
Get an overview of the type and number of agreements in your business. Most companies underestimate the number of signed contracts, which often results in unnecessary costs. Examples can be customer contracts, supplier contracts, framework agreements and leases.
2. Clarify responsibility
Clarify who in the business has rights or authority to enter into agreements. Is there an approval process? What criteria form the basis for the rights, such as amount limits, can authority be delegated, organizational structure, etc.?
3. Collect in one place
Agreements are often stored in a combination of folder structures, different software, Excel spreadsheet files and in the "worst case" in binders or in the heads of those responsible. What risk does it entail in practice? Find out where agreements are stored, and collect them in one place so that you have an overview. They should be registered so that they are easy to find again, and that you can see a full history of changes.
4. Create routines
After the contract has been set up, it must be followed up. Consequences of not following up can be large and costly. Avoid auto-renewal of contracts without having been assessed and agreed. Good contract management should notify contract managers at the end of the notice period or other critical date: for renegotiation, price adjustment or follow-up of options. Notification must be taken care of so that you don't become dependent on key personnel.
5. Cost control
Make sure you have control over your future costs. The cost must be retrieved with the desired periodization, per month, quarter or year. This way, you have the insight required in various situations. This will simplify both accounting, budgeting and planning going forward.
6. Good planning
Make a plan for contract management if someone quits, becomes ill, has a holiday, or is on leave. Who takes over the responsibility for the agreement and how should it be handled in practice? You gain better cost control, and you will always have correct and up-to-date information for audits, due diligence or other change processes.
7. Digitize and automate
By switching to digital solutions for contract management, you save time, while gaining better control. There are many digital solutions that streamline and simplify contract management.
Do you need help? We have the expertise!