What Is Contract Management?
Contract management involves the creation, execution, and termination of agreements from their inception to their termination. To maximise operational and financial performance, performance analysis against the contract terms is crucial, as is identifying and reducing financial and reputational risk through non-compliance with the contract.
Why should you use contract management software?
The contract management software digitizes and stores all contracts in a central repository, allowing stakeholders, such as legal departments and compliance departments, to find and review contracts, eliminating the need for manual search and sorting through stacks of paper. Additionally, contract management software ensures that only authorised people within an organization can view a particular contract, enhancing security.
Using the software, businesses are also alerted when contract expiration dates are approaching, so they can decide whether to renegotiate or cancel their contracts before they expire. This prevents businesses from being locked into contracts that automatically renew at increasingly unfavourable terms year after year.
The final advantage of contract management software is that it is able to be integrated with other financial or procurement software in order to track the current spending against a particular supplier.
The contract management process
Assuring timely delivery of products: This ensures that orders are filled and products are delivered on time.
A procurement environment is continuously seeking improvements so that efficiencies can be enhanced and profits can be increased.
An ongoing assessment ensures that contracts are honoured and all purchasing processes are followed during procurement activities.
Renewing or terminating contracts: Taking proactive steps to determine whether contracts should be renewed as is, renegotiated or terminated, based on future business needs, commercial attractiveness, and past performance by the supplier.
Contract management best practices
- Create contracts using a set of terms, conditions, and legal language that applies to most contracts.
- Monitor contract approval time. The early delivery of goods and services gives an organisation a better chance of establishing a positive relationship. Additionally, the business has a better chance of taking advantage of future opportunities due to its faster responsiveness.
- You can set up automated reminders to remind important parties to review the document; this eliminates the chance of missing certain addresses in group emails.
- Incorporate financial metrics into regular contract management reviews.
- Review compliance on a regular basis. By ignoring this responsibility, the company leaves itself open to legal, industry, and external risks