Contract management is a much-overlooked aspect in business, however, it is just as important as other areas of management. Contract management entails taking responsibility for the management of contracts between businesses and their customers, employees, or suppliers.
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Contract managers are required to have legal knowledge and experience in creating contracts as well as the ability to analyze how a contract will affect operational or financial performance. Another key element of contract management is highlighting and reducing any risks caused by the terms in a contract.
The job of contract management can be costly and time-consuming especially if done without using any software, however, there are ways to improve the efficiency, speed, and organization of a business’s contract management system which you can read about below.
1. Streamline Your Contract Management System
The effectiveness of a contract management system depends on the implementation of best practices throughout the team and also the creation and management of processes that can be consistently repeated. Businesses who are seriously looking to optimize their system may use contract management software, informed reviews at Contract Hound can give you a good idea of the different functions of the contract management software on the market. The software selected is dependent on the areas and processes you want to improve in your contract management system.
The first step in contract management is contract origination, which entails writing all the terms and clauses. Traditionally, without any technology being used, drafting, editing, and rewriting contracts can be time-consuming and costly. However, some contract management software has contract initiation tools and content built-in including clause and template libraries. It is easy to set up templates and automated contract cycles on contract management software, leading to savings in time and money.
Contract automation will benefit any business dealing with contracts on a daily or weekly basis, as a delayed contract can cause real disruption or damage a company’s reputation. Contract automation saves time by allowing teams to create and edit contracts together, which is faster than emailing constantly for revisions.
2. Review The Goals Of Your Current System
If your current contract management system is causing your company to waste time or failing to track issues, then it is understandable that you want to make improvements. Before deciding on a plan of action, it is a good idea to review the system you are already using.
It is useful to document all the drawbacks of your existing system and processes in a detailed review and get feedback from your team. This will provide you with all the insight you need on how to improve your contract management system.
Once you have collected this information, the next step is to set clear and measurable goals which may focus on cost savings, risk reduction, or improved tracking and reporting. When setting goals, a solid understanding of what you need to change and what you want to achieve is a necessity.
3. Track The Performance Of Your Contract Management System
When best practices are not followed in contract management or the contract terms and conditions are not fully enforced, then problems are likely to ensue such as upset clients or suppliers, which if not addressed, could lead to legal issues.
Contract tracking is composed of a few work areas including:
- Obligation management, which ensures the stakeholders are following the terms and deliverables on time
- Amendments & drafts, where managers have to collect and collate all relevant documents to create initial drafts and make amendments during and after negotiations
- Audits & reports, that involve excellent record keeping to ensure a company and parties it is signing contracts with are compliant with laws and the terms set out in contracts.
The reporting and analytics tools in most contract management packages can provide you with real-time data on the progress of contracts and help to identify any risks. The information and insights provided can assist contract managers with the enforcement of terms, conditions, and time scales.
4. Minimize Risk
A contract that leaves a business open to risk can cause real damage, so it is important to develop smart and efficient contract management processes in your company. Importantly, you should also make sure your team is trained on how to use the system and software.
Contracts are often diverse and can involve customers, partners, and suppliers located around the world, this can expose companies to a degree of risk. Although, this can be mitigated by utilizing good practices and contract management software which will assist with identifying financial, regulatory, or reputational risks in a company’s portfolio of contracts.
There are many moving parts to a company, which require agreements between businesses and individuals both locally and internationally. Naturally, these agreements are often recorded in the form of contracts, which for larger businesses may be numerous and must be managed. Contract management can be a process that costs a lot of resources, however, all the processes involved can be made faster and more effective by using contract management software.