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10 Tips for Successful Vendor Contract Management

Ask any business owner, and you will know how much businesses rely on third-party vendors to run their businesses successfully. From procurement, legal, key component supply to managing IT infrastructure, every business has a dependence on third-party vendors that they absolutely can’t do without.

Although it seems to get a vendor onboard is easy (theoretically find the right person, sign a contract, and outsource the task), in reality, it’s not. While a small-sized business may work with a handful of vendors and the management may be easy, large corporations work with several vendors for their daily operations. And so, it becomes critical to have a process in place for vendor management. A McKinsey report that it’s not uncommon for businesses to have as much as 90 percent of revenues tied directly to vendor management.

Additionally, vendor relationship management is challenging too. There can be compliance requirements, delivery of cheap quality goods, inaccurate shipments and delays, that can further complicate things. Hence, vendor contract management software is essential for businesses of any size and in all industries.

What is vendor contract management?

It takes care of the associated risks, revenues, renewals, and relationships in vendor management. Organizations create, negotiate, agree, store, and track vendor contracts through vendor management software to help their legal procurement and finance teams manage a third-party vendor more efficiently.

Having a streamlined vendor contract management process has many benefits, including:

  • Reduced administrative overload
  • Cost savings in the long run
  • Increases visibility of spenders
  • Automates the process of managing contracts
  • Enhances the level of compliance among stakeholders

Tips for effective contract management

1. Clear planning process

Whether you are enrolling a new vendor or renewing an existing one, ensure that you follow a clear planning process so that everyone is happy and has a clear understanding of the requirements.

2. Implement a CLM software

A CLM software or contract lifecycle management software reduces the contact turnaround time. By streamlining the key stages of contract management like authoring, initiation, workflow, contract renewal and beyond, it can help you save time in managing vendors.

Furthermore, contract management software provides both the tools to speed up contracts along with data to identify the roadblocks.

3. Clarify the scope

Your contract should clarify the scope of the contract so that there is no confusion later. Also, ensure the level of contract management is within the scope and complexity of the services.

For example, an IT contract is likely more complex than a commodity supply contract. The provision within a contract may vary too. Is the contract for a routine delivery or additional special arrangements? What are the provisions for underperformance, dispute, or shipment of incorrect orders? Ensure that you have your legal and procurement team on the same page to ensure ‘normality’ prevails and there are measures in place when things are not according to plan. And that’s where vendor contract management software comes to use.

4. Understanding the commitment involved

contract authoring

Contract Authoring and Negotiation – Create, Collaborate, Negotiate and Execute contracts with ease and speed.

 

A clear contract can help you understand the commitment of both the parties involved. Procurement teams need a clear understanding of the scope, time involvement, impact of the contract on the outcome, pricing and overall business processes.

5. Establish the payment timing, contract renewals and expiries

You will pay the vendor after specific tasks are met. But what will be the payment timing? Is it going to be at the end of the month, beginning of the next month, weekly, biweekly? Establish the payment timing in the vendor contract management software.

contract reminder

Alerts & Notifications – Stay ahead of contract renewals and negotiations with Smart Alerts and never miss a renewal again.

 

Additionally, unwanted contract expiry is a contract management issue both small, large and medium-sized companies struggle with. Unwanted expiries and renewals are an annoyance preventing optimal company performance.

An intelligent contract management software prevents unwanted contract renewals and alerts the stakeholders about contract expiries. They give stakeholders enough time to anticipate contract milestones and be better prepared.

6. Constantly monitor the contract and clauses

Just having a contract in place is not enough. Legal teams need to constantly monitor the contract, check for the renewal dates, and update any changing needs for any of the parties under a given circumstance. All these can effectively contribute to keeping the project on track.

Vendor management software for procurement teams improves their effectiveness and organizational efficiency.

7. Reduce the need for multiple data entry

In absence of a system to “pull” and “push” data in and out of contract, there are chances of double and triple data entry. This leads to errors and inefficiency.

Integrate your vendor contract management with ERP and CRM systems to reduce the need for multiple data entry. Right from vendor clauses, contract type and dates, to payment conditions and more, the data entry for every step of the contract is automated.

8. Termination clause

The termination clause is an important aspect of vendor management software and should be mentioned clearly. What are the circumstances that can lead to termination? Under which circumstances (for example, a breach) the contract can be terminated? All these should be clarified.

9. Consequences in case of a breach

A contract should clearly state the consequences in case there is a breach. Will the contract still hold good, or will there be an immediate termination of the contract if there is a breach? To what extent a breach is acceptable, and which calls for contract termination?

All these need to be specified in the intelligent vendor contract management software to avoid any dispute later.

10. Ensure that both parties are happy with the terms

Personal relationship clashes can often bring in trouble in some contracts. So it is important to ensure that both parties are happy with the terms. Having a good working relationship and mutual trust and respect all positively contribute towards this.

Key features of vendor contract management software

1. Contract Repository

A vendor contract management software serves as a central repository of all the contract documents for your organization. Contract management helps streamline the process, gives you better insight into the vendor performance at both sell-side and buy-side, and allows you to keep track of all the contract dates.

Smart Repository Software

Smart Repository: Store all your buy or sell-side contracts and files in one central repository.

2. Approval Workflow

Contract management software helps in workflow management across customers, vendors, suppliers and assets. This ensures there is on-time vendor payment owing to complete traceability, going beyond data to optimize business decisions and gaining complete visibility into your data.

As a result, you can collect all the paperwork on time, issue purchase orders upon approval of the contracts and so on.

3. Vendor Profiles

A unique feature of Revnue’s AI-based contract lifecycle management software is it creates vendor profiles based on contract information and metadata.

supplier management

Supplier Management: Consolidate information and delivers insightful analytics that translate into better negotiations and improved relationships with your suppliers.

 

4. Renewal Reminders

A vendor management software has several automation features, and one of the important ones is to have auto-renewal reminders. So, you don’t need to keep track of all the contract end dates.

renewal reminders5. Security

Intelligent contract management keeps your contract documents safe, so there is no unauthenticated access or alternations of the clauses. The hashing technique keeps track of it and notifies any unauthorized change in the contract document.

Conclusion

When implemented correctly, a vendor contract management system can help you streamline the process, reduce cost, remove human errors, and make the entire process faster. This translates as efficient business management.

Need help with implementing vendor contract management software? Get in touch with us for a free Revnue demo.

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