As every company knows, it can’t exist in isolation. Your success relies on connecting with a variety of third parties including vendors, customers, new hires, shareholders or other business partners. Contracts are essential to facilitating these relationships that ensures satisfaction from both sides and protection from mishaps.
These legally binding agreements manage the rights and duties of all involved parties in a business relationship, but contracts themselves need to be managed, as well. Many companies don’t fully understand the importance of contract management goes beyond simply taking the initiative to create one of these documents. Without a formal system in place to manage the contract lifecycle, numerous things can go wrong.
What Could Go Wrong?
Are you familiar with Murphy’s Law? Essentially, it can be summarized as: anything that can go wrong will go wrong. This can be true in many scenarios including war, sea faring and yes, contract management. Failure to recognize the importance of contract management will create negative outcomes for you every step of the way.
Lack of Visibility
Your problems can begin before anybody has even signed on the dotted line. Without adequate communication and collaboration, it’s difficult for each party to gain an adequate understanding of all a contract entails before signing. This is problematic for a whole host of reasons, the most obvious being that if everybody doesn’t know all facets of a contract they’re entering, the likelihood they’ll be able to fulfill their responsibilities is slim.
For the doubters who believe that businesses wouldn’t enter into relationships in which they don’t have full visibility, consider how many times you’ve agreed to the terms and conditions of a service contract without careful review as an individual. Businesses enter into far more contracts that a single person.
The process of crafting, reviewing, revising and approving a contract calls for the inclusion of several teams of people inside and outside of a company. Involving all the necessary people in negotiation seems simple at first, but eventually, information will slip through the cracks and stakeholders won’t be able to keep up with updates. At least, that’s the case without formal contract management practices.
The importance of contract management doesn’t lessen after signing. Deadlines, renewals and other relevant updates need to be tracked, as well. If your approach to contract management is a casual “winging it” mindset, it’s difficult to track every date and stay on top of timelines. Managing processes informally, also becomes more difficult as your business grows. If it’s already difficult to manage a few contracts, it’ll be even harder when your business scales up and you start making more business agreements.
Without a clear contract management process, enforcing the terms of a contract becomes no easy task. Oftentimes, companies don’t give adequate resources for maintaining and following up on specific requirements of a contract. This will lead to errors as parts of an agreement are neglected. When any terms go unfulfilled, it can make an entire contract less successful, especially if goods or services aren’t delivered as promised. A contract becomes almost entirely ineffective if the built-in contingencies of noncompliance aren’t carried out. All parties need to have some method in place to monitor compliance and follow status updates, deadlines and renewals.
Rogue contracts are those created outside the proper processes. Usually, these are made using an existing template, but the template has likely not been updated to the most recent version. Because employees believe they have what they need to create a new contract, legal teams aren’t included in the process. If they do happen to come in during review and approval, much of this time will have to be spent updating the template itself. If these rogue contracts ever get approval and are signed, there’s also the question of legitimacy. Is a contract based on outdated information even valid?
A fundamental part of contract management is proper recordkeeping. If you’re still using manual systems to manage this task, you’re likely familiar with the wasted time and frustration of looking through filing cabinets or emails for documents. Until your contracts are stored in a single, central location, you can expect to contend with the loss of important documents and missing important deadlines.
One aspect of the contract lifecycle often overlooked is storage. Once a contract is signed, a copy needs to be kept somewhere safe and secure. There are plenty of unsafe places in a company: your desktop, filing cabinets, even a shared drive. If you don’t take the right precautions, a security breach can expose sensitive information. And don’t forget, you need to consider accessibility within your own organization, too. You’re also exposing yourself to potential risk if you store sensitive contracts in common locations that anybody can gain access to.
A contract is a legally binding document, so if anything goes wrong, it has the potential to cause serious legal implications for your company. Every touchpoint needs to be considered, from the way documents are stored to the way they’re updated is essential for mitigating unnecessary risk.
The Importance of Contract Management Software
When you fail to take management seriously, it’s very likely that you’ll encounter these above impediments as well as many others. The importance of contract management lies in its ability to introduce efficiency and reduce risk throughout the contract lifecycle. No approach has better results than contract management software.
TotalCompliance Contracts creates a central location for drafting, reviewing, approving and storing contracts. All parties can collaborate on a single document, ensuring that the version each person sees is the most current. This also prevents stakeholders from missing important developments in the process and significantly speeds up review and approval. Our system tracks all actions connected to a contract. You’ll receive verification when anybody acknowledges or rejects a contract. Automated reminders prompt recipients to give their responses.
You’ll also never miss an important deadline again. Versions will be stacked together, with the most current version of each contract always displayed, while keeping a history of all past versions. Reminders alert you when a contract is entering its renewal period or is about to expire. All documents are stored in a cloud-based repository. A flexible grouping structure ensures you’ll always control access to each contract within your organization. External clients will only be able to view their own contracts.
Effective contract management practices not only help everyone understand the process better and create opportunities for improvement, they help your company minimize financial risk and be more prepared to scale up operations as your business grows. The importance of contract management software can not be understated in helping you pursue and achieve your business objectives.
To learn more about adding TotalCompliance Contracts to your toolbox, request a demo with ComplianceBridge today.