The amount of revenue lost annually due to poor contract management is around 9.2% according to the International Association for Contract and Commercial Management (IACCM). To reduce the negative impact of sub-standard contract management, we have come up with ten tips to ensure the successful implementation of contract management in your business.
1. Create an Implementation Plan
Before any contract management can move forward from the negotiation and signing stage, it is important to develop a contract management implementation plan to ensure all parties are fully aware of the terms and what is required to be delivered.
2. Roles and responsibilities
Everyone involved in the contract management process must understand their roles and responsibilities. Whether that is the contract manager or dedicated contract management team, steps should be taken to ensure all parties have detailed knowledge of what is required from them at all stages.
3. Key Performance Indicators
It is important to set key performance indicators (KPI’s) during the negotiation phase of the contract management process. KPI's are particularly useful in vendor contracts to protect all parties involved. Failure to meet standards will prompt red flags so improvements can be made quickly.
Agree on a set timeline so unproductive contracts will not auto-renew and stay on top of renegotiating contracts and exit strategies.
The people dealing with contract management are not likely in the same department that procured and negotiated the contracts, so steps need to be taken to ensure a smooth transition to other departments. They will need to know all the KPI's and timelines as well as access to all associated documentation so the contract management team can immediately set up notifications for specific events and milestones.
6. Risk Management
Everyone involved in contract management should be skilled in risk management due to the potential risks involved in any contract. Although risk management may not technically fall under contract management, risk assessments of third parties should be ongoing to avoid costly contract disputes. Contract management teams need to work in conjunction with finance and legal teams, so these relationships need to be nurtured and open to communication.
Information related to contracts needs to be readily available and communicated to all relevant stakeholders, and a framework for tracking performance is a best practice when managing expectations. KPI’s, contract reviews and deadlines need to be monitored and communicated with everyone involved to make the contract management process run as smoothly as possible.
8. Record Management
Audit trails mitigate risk and protect businesses from potential litigation, and a consequential part of contract management is securing the storage of documentation. Contract management software uses advanced search functions and tagging tools so administrative processes can be simplified and streamlined, allowing businesses to grow at scale. By using metadata to search contracts for key words and clauses, information can be identified quickly and easily.
9. Regular Auditing & Reporting
Contract management does not end with the signing of the contract. It is important to continually audit and third-parties to minimize risk and protect the company from non-compliance. Regular reporting can reduce the risk of litigation and fines which can have devastating financial consequences, and you are less likely to miss expiration dates and renewal opportunities by using workflows.
10. Implement Contract Management Software
Embrace technology and automation to streamline contract procedures. Become more efficient and improve business revenue by implementing contract management software or adapting contract management software to a current framework. Contract management software automates processes and safely stores documents in a centralized location. Automated reporting tracks information with revision history so you can see how contracts have changed over time. Automated workflows reduce the time spent by employees so productivity improves.