Efficient contract management processes are essential for businesses of all sizes.
We’ve gathered the best tips for contract management to help you improve your approach and outcomes.
The larger your business, the more difficult it is to maintain control of agreements with customers and suppliers. More people, locations, and departments contribute to increased complexity.
Contracts may be spread across servers, local PCs, in-boxes or paper-based filing systems. They are difficult to find and, worst case, can get lost or forgotten. This leads to unnecessary costs, lower revenues - and reduced profitability.
The only way to overcome these challenges is to implement the right strategies and technologies for contract management.
Whether you are contract manager, purchasing manager or CFO you want the optimal contract management process from beginning to end. Where should you start? What process should you follow? What are best practices?
We've put together this quick guide to contract management, covering key elements you need to know throughout the contract lifecycle.
1. Get an overview
The first step in an effective contract management strategy is to get an overview of the types contracts across your business. Map out what contract types you have and how many there are of each type.
You may have to check with the various departments several times or organize a project group to simplify the process.
Some types of contracts include:
- Supplier contracts – agreements for delivery of product and services that are essential for meeting your obligations to customers
- Sales contracts – agreements with buyers (customers) for the sale of your goods or services
- IT contracts and subscriptions - for servers, cloud storage, software licenses, PCs and phones
- Rental contracts - and associated security, insurance, parking, electricity and Internet services
- Leases - for company vehicles, offices, industrial space, equipment and other items
- Framework agreements - for legal, marketing and communication services
- Employee contracts - related contracts, for example for travel, insurance, pensions and gym memberships
- Other – partnership agreements, non-disclosure agreements, etc.
2. Gather contracts in one place
Once you have an overview of contracts types, begin to gather them in one place.
Make it easy for your colleagues to send in contracts to a central register (contract database) whenever a new contract is signed. For example, everyone can send contracts to a generic email address like firstname.lastname@example.org.
From here, the contracts should be registered, stored and organized into a central contract repository.
Contract repositories prevent businesses from 'losing' a contract and make it easier for authorized personnel to find original contract documents, amendments and other relevant information.
3. Define contract processes
Each step in the contract lifecycle should be defined and agreed with the various stakeholders.
It can be helpful to have a checklist with 3 stages: pre-signing processes, signing and post-signing.
Examples of questions you should discuss and document include:
- Who is involved in drafting contracts?
- Are templates available and appropriate?
- Who is involved in review and approval processes?
- Can authority be delegated?
- Who is authorized to sign contracts?
- Under what conditions (e.g. up to what contract value)
- What tools are required for authenticating digital signature?
- Where are signed contracts sent for archiving (ie. central register)?
- Who is responsible for contract evaluation?
- How will contract owners know when a contract should be renewed or renegotiated?
- Is there a yearly contract review process/audit?
- Who can access the contract library?
- Which contracts are under dispute or at risk?
Every contract should have a contract owner. This person is responsible for entering contracts and evaluating whether the contract is giving the intended benefits.
Contract ownership is also important when someone leaves the company, gets sick, or goes on holiday. When you know who the contract owner is, it is easier to reassign responsibilities and adapt to changes in personnel.
4. Monitor deadlines
Every contract must be followed up. The consequences of not following up can be large and costly.
Consider contracts which renew automatically. If these contracts aren't followed up properly, you miss out on the chance to renegotiate the deal or terminate it altogether. This might lead to paying for goods you don’t need at all.
Effective contract management systems should notify contract managers and owners of contract renewals, terminations and other important dates.
The notification process should be automated so that your business isn’t dependent on any one person.
5. Ensure financial control
Finance and accounting and track contract values for invoicing, budgeting, forecasting, planning and reporting.
Values should be registered at the same time the contract is registered. That way key figures are readily available without having to dig through long contracts.
This will also help accounting recognize income, costs or obligations in the correct periods. Ideally the values are periodized, per month, quarter or year.
Different brands of contract management software provide reports and dashboards to help finance and accounting measure performance and variance.
If you haven’t already moved from manual processes to digital tools, now is the time to consider contract management software. Contract management software organizes, automates and facilitates the entire contract management lifecycle.
There are a variety of tools on the market which save time, and offer you better control of contracts.
The best contract management systems will help you:
- access contracts from multiple locations
- provide overview of customers, suppliers, vendors, contractors and subcontractors
- speed up signing
- eliminate dependency on key people
- simplify working with contracts in different languages
- manage contracts policies and procedures
- shorten contract drafting and review processes
- eliminate automatic renewals and unwanted costs
- improved invoicing, budgeting and financial control
That’s rounds up our tips for contract management best practices! They may be somewhat simplified, but we hope they make life easier for you and your organization.
Contact our experts for more tips or information about our contract management software.