Strong contractual relationships with vendors are essential to a company’s continued ability to deliver their products or services. These vendors could be wholesalers or suppliers and are important links in your supply chain. Vendors could be SaaS companies providing accounting and payroll software, eCommerce software or worksite management software. Or, vendors could be companies you outsource certain aspects of your business to such as Human Resources, security and customer service. Without these partners, you’d be missing a fundamental element in support of your business operations. This is what makes vendor contract management so important.
A vendor contract ensures that both you and your vendor understand what each side will deliver to fulfill their end of the relationship, and while it may seem simple at first, managing these contracts is more complex than you’d expect. There is a lot of responsibility written into a contract for each party. Good management practices will help you meet the operational, functional and business objectives outlined in each contract while assuring a win-win for all.
A disorganized approach at any point during the vendor contract management process may result in a bad contract or a risky situation for your company. With a thorough understanding of all that the process entails, you can move forward in every partnership confident that you’ve left no stone unturned and that benefits will be enjoyed on both sides.
Your Process Should Include:
Before there’s a formal contract stored among your records, you’ve formed a relationship with a third-party company that is able to provide a service or product that you require. There are a number of things you can do in the beginning of the process to find and secure a vendor. Strategies may be reviewing past vendor agreements to discover what did and didn’t work, identifying potential risks of new vendor relationships and how these could be mitigated, determining compliance requirements that might be a factor in the vendors you can partner with and more.
There are a number of tasks you can do before you even choose an external vendor that will make your choice easier, and when you do pick a possible company, the partnership will already have a strong foundation. Only a third of companies actually evaluate third-party vendors before engaging with them, so by taking just a few proactive measures, you’ll already be starting your contract management from a better position.
Every contract should begin with a commitment from your company as a whole that any agreement will only be entered in a centrally managed and uniformly enforced manner. If the various involved areas of your business cannot effectively control the process of contract creation, negotiation and adherence, your relationship with vendors will suffer.
Another responsibility you have in managing an effective relationship is ensuring that the contract negotiation and creation is undertaken by experienced, qualified personnel. It’s in everyone’s best interest that a vendor relationship be thorough, profitable and mutually-beneficial in the long-term, and the best way to guarantee that is by giving the contract management process the time and resources it deserves.
The actual negotiations and discussions involved in the drafting of a contract is a core element of the vendor contract management process. Contracts are intricate documents, and you don’t want to find yourself trying to lead a haphazard process. If a vendor has interactions with several different parts of your business, these touchpoints need to be considered during contract creation or risk creating inconsistencies, poor tracking and reporting provisions or other oversights that could create more risk for your company.
While you should absolutely make sure that negotiations consider all relevant business areas, if you delegate too much of the process to other managers in your organization, you risk key parts being neglected simply because there was confusion over which responsibilities each participant held.
There are many potential elements to consider in a contract – far too many to be named here. Suffice it to say that the best way to ensure all matters have been considered is by making the process of contract negotiation as systematic as possible, and this includes the approval process. As each party is assessing the document and determining their satisfaction, this is an opportunity to consider possible improvements. How can the agreement be improved to be more efficient, safe, cost-effective?
At the end of the day any contract should forge a vendor relationship that is mutually beneficial, ensures mutual performance, effectively safeguards its signees leads to improved profitability.
Responding to Changes
Even after everyone has given their approval and signatures have been gathered, vendor contract management isn’t over. The environment in which a contract was created should still be monitored for change. Factors including pricing, delivery of goods and services, quality and exception handling should be assessed on an ongoing basis to both ensure that all parties are adhering to the agreement, and that any new changes can be addressed in a timely manner.
Continual assessment also helps you respond more quickly should you find that the terms of the contract have been ignored or a vendor is exhibiting poor performance. Actions such as penalties, additional training or termination of the vendor relationship are not repercussions that should be carried out discordantly. Effective monitoring should help you be more conscientious.
Such is the case with some developments, the contract may need amending. Industry regulations may change; certain goods and services may no longer be available. Ongoing contract administration will help you handle these changes effectively and ensure that the spirit of the document is still being followed.
Vendor Contract Management Software
To facilitate each component of the contract management process at your company, software can keep you organized and ensure that core aspects are covered including where contracts will be stored and how they will be tracked. For obvious reasons, it’s ideal to have a central, secure repository for all vendor contracts that will make it easy to track key terms such as expiration dates and renewal notices. Without proper tracking, contracts can expire or auto-renew without your knowledge.
Don’t let important documents or signatories get lost in the shuffle ever again. With TotalCompliance Contracts, you’re able to work collaboratively with other parties to create contracts that take everyone’s concerns into account. You’ll always work on the most up-to-date version of the document, but maintain an organized record of changes. After contract creation, route to individuals, departments or distribution lists for review, approval and verification of information. Now, bringing in staff from legal, operations, accounting or other departments only takes a few moments.
You’ll receive verification when anybody acknowledges or rejects a contract. Reminders will prompt recipients to give their responses if they’ve been slow on the uptake. You’ll also be notified when a contract is about to expire and is due for renewal, so no part of the process can slip by you. While end users will be shown the most current version, TotalCompliance maintains a lifetime archive for your benefit.
TotalCompliance Contracts gives you the freedom to organize documents however you choose, and a flexible grouping schedule will allow you to layer access. Whether you have purchase orders, SSAs or proposals, our system enhances your contract management activities while simplifying the process. Request a demo with ComplianceBridge today to learn more about TotalCompliance Contracts and our suite of risk and policy management products.