Managing contracts sometimes can become so daunting that you may need help at several fronts – legal, managerial, operational, strategic, and so on. A company may be dealing with vendors from different countries and laws differ from state to state. This makes room for several grey areas and not everyone knows the rules or the exceptions to them. Here’s where good contract management practices come in handy.
At Revnue, while offering contract management platform services, we often get into the nitty-gritty of some industry best practices that are particularly beneficial in specific domains. In this blog, we speak from experience.
Why is it so important to care about good practices?
Let us understand contract management through a simple fire department analogy. Whenever the fire department gets a call for arson or fire, their first instinct is to rush to the scene with the force. Their primary job is firefighting and their secondary job is fire prevention in areas of the building that have not caught fire yet. The firemen are trained in protocols, they follow a rule book.
A contract is such a rule book that defines the roles and responsibilities of each party. The process of contract management is more on the line of firefighting since the contracts are already in place and need intelligent management. Best practices, on the other hand, can be likened to fire prevention – they help us prevent mishaps from happening in existing contracts.
A combination of a contract management platform combined with best industry practices saves businesses time, energy, and resources, and often leads to cost reduction as well.
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Contract Management Best Practices in Process
# Standardize your process
When the foundation of each contract is laid well, the contract is more likely to yield benefits. It is important that every business develops a systematic process of creating contracts. A standardized contract-making process ensures there are no surprises when it comes to terms of the contract and there’s enough room for grey or unforeseen areas. Here’s what a standard contract process looks like –
Step 1: Contract creation: The very first step is to identify contracts and relevant documents that will support the purpose of the contract. Then there should be a process in place to author the contract.
Step 2: Collaboration: Through good contract management software, different versions of the contract must be compared, discrepancies removed and the final version be saved.
Step 3: Contract signing: This process will involve approval of the contracts and execution. This is where most bottlenecks happen. A good contract management process will have approval workflows to speed up this step. Today, digital or cloud-based contract management tools allow electronic signatures and security filters that accelerate contract signing.
Step 4: Tracking: This includes revisions and amendments, obligation management, and auditing and reporting. This step is crucial for ensuring that all contracts hold good for the benefit of the company and continue to serve. Digital contract management software allows tracking the deliverables being met by vendors, making amendments, and reporting.
Step 5: Renewal: This process should be automated in a contract management software that must push notifications whenever renewals are due and filters are installed for taking the next steps.
# Predetermine contract information flows
At the time of drafting contracts, businesses should push for accuracy and visibility apart from easy access to the desired information. For instance, there must be clear categories or heads of costs incorporating any hidden or future overheads.
# Bring consistency to your approach
Be consistent in your approach right from the start. Make rules for obligations and ensure that vendors or providers abide by those rules, without any exceptions. Never get into the habit of providing small concessions here and there since they lead to overhead costs in the future and bring about strains in vendor relationships. Rules must be applicable for all and install tools to ensure you keep your end of the bargain in every contract. In case of changes, always have a system in place that records amendments, reasons for changes, or the circumstances when those amendments were made.
# Hire a good contract management team
There should be a group of experts within the company or a contract manager that supervises the contract processes. While small businesses can install intelligent software, medium and big enterprises will also need a team of people managing those tools correctly.
# Install a good contract management platform
With the amount of complexity that businesses face today, it is almost unthinkable to manage contracts manually. There must be a good contract management platform in place that provides easy accessibility and visibility of contracts throughout the organization for quick referencing.
Contract Management Best Practices in Principle
# Deep understanding
It is advised that every word of the contract be read thoroughly and understood. There may be legal jargon that may have a context you don’t understand or there may be ambiguous terms that may entail trouble in the future. Therefore, as a matter of principle, it is advisable to have a deep understanding of each contract.
# Background checks
Vendors and providers come from different backgrounds and work practices. Some vendors may provide quality material but they may be unprofessional in their dealings, others may be thoroughly professional but may be inefficient. It is important to cross-examine the background, past work experience, or track record of people entering the contract.
# Look for ambiguity
Ambiguous terms will not jump out, you will need to look for them. Sometimes contracts may refer to other documents that may not be previously verified. Make sure you review each such addendum or external document before signing the contract.
# Make no exceptions
As we stated earlier, our experience in dealing with contract management challenges can be summed up in one principle – exceptions to the rules lead to more rules and complexity. As a principle, never make exceptions in a standardized process of contract management for anyone. One rule broken may cost any business dearly in terms of financial losses and may also disturb a smooth contract-honoring process.
Revnue provides an AI-powered contract management platform that follows industry best practices. We have developed this platform with a vision to help modern businesses achieve their end goals. Our platform goes beyond document or contract management and allows for intelligent analytics that enables good business decisions. If you want to learn more, schedule a demo now.