How a business manages contracts determines if the contracts will become risk factors that hinder business growth. Typically, how your business handles contracts affects the business bottom line. A survey by World Commerce and Contracting found that poorly managed contracts cost businesses up to 9% of the annual revenue.
Fortunately, businesses can avoid losses in revenue by observing several contract management best practices. Below are some of the best practices that your business should adopt immediately.
- Creating standardized contracts
The negative impacts of poorly written contract documents are severe. Your business can lose millions and attract a negative reputation, resulting in loss of customers. Business managers should understand that contract terms vary depending on the nature of businesses or types of services offered, region, and contracting parties, complicating the entire process.
For instance, contracts between a business and an accountant vary from one with suppliers. This explains why sales and legal teams may take several days, weeks, or months to draft a contract. Fortunately, using contract collaboration software can streamline contract creation between parties. With these systems, your legal teams can access multiple templates and choose one that suits the pending contract.
Using templates significantly reduces the time and costs of contract creation. You are also sure of error-free contracts, as templates come with all terms and legal provisions.
- Identify realistic key performance indicators
Once the contract becomes active, you should set performance metrics post-approval. Key performance indicators help businesses evaluate the progress of contracts to determine whether the partnership can achieve the desired results. Setting KPIs require that your legal teams switch from a reactive to a proactive contract creation approach.
A proactive approach to contract creation revolves around finding ways to mitigate risks while maximizing revenue opportunities. Your metrics should be based on your goals. For instance, if your goal is to shorten the contract negotiation period, specific KPIs should revolve around the timeline for contract creation and approvals.
- Track obligations
Unfortunately, most people forget about their signed contracts after the post-approval phase. They only remember them when an issue arises. However, contracts are important, even after signing them. Your business should continuously track contracts to ensure that all obligations are fulfilled to avoid breaching the agreement. This is specifically important for large businesses with multiple active contracts.
Contracts should be easily accessible for businesses to fulfill their obligations. Otherwise, you can’t track the execution of contracts that can’t be located. Since relying on individuals to track contract obligations is risky, you should take advantage of a contract management system.
- Automate communications between parties
Initially, most businesses and organizations relied on email to communicate contract details. However, emails are not centralized and have many loopholes. For instance, due to the detailed nature of contracts, you might forget to include the addresses of all the relevant parties when responding. Emails can also hide important threads.
To avoid this, automate all communications using a contract lifecycle management system. This tracks all communication and sends notifications to relevant parties in real-time. This ensures that no party is left behind during the contract stages.
Endnote
As mentioned, poorly managed contracts cost organizations up to 9% of their annual revenue. On the other hand, well-managed contracts can save between 30% and 50%, promote the development of long-term contracts, and ease project execution. Adopting these contract management best practices improves contract outcomes.
