Industry Best Practices
According to a survey conducted by International Association for Contract and Commercial Management (IACCM) in 2003, an overwhelming majority of international corporations (70%) state that contract management is a main operational weakness. You’ll know if your company is experiencing contract management troubles when there is difficulty communicating between different departments as well as inefficient business processes and mistake-laden contracts.
So what should your business be doing to keep on top of contract management? Check out some industry best practices:
Visibility
Having transparency in the contract lifecycle management process is vital in ensuring that pertinent information is shared amongst key stakeholders. A study conducted by the Journal of Contract Management shows that of the 100+ companies that they surveyed across the United States and Europe, 81% of respondents stated that they had difficulties simply locating specific contracts.
Best Practices:
- Having a central repository will keep all your contracts in one location making it easier to organize and retrieve documents as needed.
- Ideally, a company can aim to have only one version of each contract, however in reality changes will be made, and new versions will be written. A solution such as UpsideLive which has version control, allows users to edit text while still having the ability to view the older version. However, when creating a new contract or template, users can only select the newest version to ensure new items are included.
- Users should be able to search easily for contracts by vendor, customer, supplier, etc. Such a process is hindered by a traditional paper/hardcopy storage system – electronic storage methods greatly help to facilitate the search process.
Avoiding Risk
Knowing who to contact and what procedures to follow in the case of a contract problem (i.e. cost leakage, unfulfilled contract requirements, cancelled contracts, etc.) can be a tricky issue with many companies. Most businesses are too pre-occupied with dealing with obstacles as they arise rather than proactively monitoring performance metrics to assess and gauge contract risks. If a contract problem arises, would you know the financial impact and business implications associated with it?
Best Practices:
- An accurate audit trail can save companies from a lot of unnecessary nuisances. At the very least, a record should be kept of whom approved/edited each contract and the corresponding dates of each action.
- Alerts and notifications should be sent to the appropriate people by the contract management solution when risks occur.
- Integration of your contract management solution with your financial system is recommended so financial risks can be carefully monitored and cross-examined by both systems.
- Stakeholders should have easy access to reports on performance metrics, contract and project status, etc. to mitigate risks as they arise.
Managing Commitments
With numerous deadlines and commitments that need to be managed, it is easy to occasionally lose track of a few. Something like a missed contract renewal date can negatively impact business relationships and cause a potential loss of negotiation power/missed opportunities.
Best Practices:
- Stakeholders should have access to an updated calendar listing important upcoming events, project and contract milestones, and deadlines. Users should be able to receive notifications and alerts through the contract management system and/or via email.
- Integration of contract management and sales systems can help to increase revenues. By keeping track of contract start and end dates, companies can ensure that they only provide services while the contract is still active and collect the entire amount of money owed to them.
- Centralizing contracts in one location allows employees to view which suppliers and vendors your company is doing business with in order to ‘piggy-back’ on existing negotiated rates. This practice will help to cut down on time spent on additional agreements outside of existing contracts.
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