A contract refers to the important written or spoken agreement established by your company with other parties. It may be between your company with suppliers, partners, employees, or even customers. Contract management, on the other hand, refers to the management involving contract administration needed to initiate, support, or manage efficient contracts, resulting in success in establishing an agreement with the desired party.
Contract managers should be trained and be well prepared in fulfilling their tasks successfully. They are expected to possess the legal knowledge and processes in conducting agreement that will end with contracts. This is because managers are the ones responsible as the mediator in building a relationship or partnership that is essential to grow your business. Hence, it is important to be aware of the fundamentals behind this as well as practicing excellent strategies in managing contracts regardless of who the other parties are.
This article will explain eleven examples of best practices for effective contract management. By implementing these practices, it may help to kick start the improvement of your contract management.
1. Involve Legal Department in Contract Discussions
It is recommended to involve the legal department of hire a lawyer if your company is willing to invest some cost into this matter. There are many benefits in hiring a lawyer while establishing a contract with different parties especially business partners or vendors.
Lawyers or the department are more knowledgeable in this matter hence the effectiveness and security of the contract are more guaranteed.
Legal action could be taken in case one of you break the agreement or breach any trust involving your businesses.
2. Selection or Hiring Best Fit Manager
Who is the best person to be positioned as contract managers in your business? You may want to answer this question before simply choosing anyone for that important position that shoulders the future of your business.
Though scarce, some schools do offer courses related to contract management. Years of education in this field may be one of the key factors to the competence of the managers. Certificate aside, a competent manager should be equipped with extraordinary communication and writing skills. Since they are the person who interacts a lot with your partners, having a manager with questionable communication skills may stain your reputation, either on a small or larger scale in the industry.
If the said person possesses solid knowledge in law, that is a bonus. The contract should not be established hastily with little knowledge of the risks it may bring in case some issues were to occur in the future. It is also indispensable to rely on legal knowledge and expertise. Hence, not anyone could simply be entrusted with the role as contract managers.
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3. Establish Systematic Processes in Contracting
Just like any other management in different sectors, there is no specific system in managing contracts. Different companies may adopt different approaches to managing their contracts. There are multiple suggestions of systems that you may want to adopt into your company. Adopting aside, it is very crucial to standardize the management in your whole company.
It is suggested to provide clear instructions or SOPs for your employees responsible for managing contracts. The guidelines may include several mandatory terms, conditions, and appropriate usage of language that apply to a broad range of contract establishment. Providing these guidelines may ease the task of contract creations as well as preventing your managers from going astray from your company standards.
4. Regulatory of Compliance Review
Once you have established a contract with a party, it is very crucial to conduct a compliance review frequently. Failure in doing so will expose the company to the risks of legal, industry, and external regulations. Contract compliance review benefits in providing deeper detail of visibility, ensuring that your company constantly receives the benefits as agreed in the contract.
Make sure the contracts are stored in a centralized repository and well organized to ease the process of reviewing. When establishing contracts with another party, bear in mind to clarify the responsibilities expected from each side.
5. Pay Attention to Important Dates
Always be alert of important dates such as negotiation dates, meetings, contract expiration, and so forth. Poor management and lack of alertness may result in missing deadlines which will damage the partnerships built with the other parties. It may even cause a loss on your behalf. You may even lose valuable partners if you were to miss renewal dates. Some contractors often provide discounts or lower rates within a certain timeframe before the expiration dates. Missing this chance may not give a huge impact on your business but adhering to deadlines is still a crucial thing to do. Some extreme cases in the past reported on contract breaching due to the mishandling of contracts.
It may be recommended to set automated reminders in alerting the person-in-charge and managers. You may want to survey available software that includes a reminder feature which helps a lot in alerting on important dates.
6. Manageable Deadlines
The deadline is one of the major aspects to be looked into. There are times when both parties are unable to meet the deadlines. When this issue arose, it may be best to have a proper agreement to move up the deadlines. Moving the deadlines may help to ensure high-quality products rather than pressuring your employees with a task and the outcome is not satisfactory.
Be realistic in setting up deadlines. A more difficult task may require a longer time to finish. In ensuring that both parties can meet the deadlines of the tasks, it is suggested to set milestones by specifying the tasks into smaller segregations. That aside, in case your partner demands for ambitious or unrealistic deadlines, formally oppose their request. Undoubtedly, compromising is the key for a longer-term partnership, but you should not lower your standards too much just for the sake of following unreasonable requests from the other party. Be consistent and assertive in standing up for your business.
7. Utilization of Software
Most companies are more comfortable and prefer traditional ways of managing contracts. The examples are manual storage of folders and documents. It is not wrong to use this traditional method. However, it is worth to try resorting to digital management as well.
The biggest upper hand of utilizing software is the automation of data, easing the process of information retrieval. The software also helps a lot in reducing the workload of manpower since most information is automatically organized and needs lesser attention and efforts compared to the traditional ones. The visibility is also more interactive. You may want to graduate from looking at papers and flipping through the pages. This saves a lot of time and effort. Works that are usually done in hours can be reduced to a few minutes or even seconds. In case your company is still stuck with traditionally managed contracts, it’s time to move on and start surveying for available software in the market.
Software or application help to digitize information and store them in a secured archive. You may customize the accessibility of contracts where the affiliated partner may gain the permission to view the particular contract, easing the reviewing process for both parties. The software may also aid in alerting your company on information involving your partners such as expiration dates or any other unwanted issues. From the quick detection, you may be able to address the issue immediately to prevent bigger problems from occurring.
8. Establish Clear Goals and Standards
Some parties may take advantage of contracts established with your business company, regarding the contract as a mere formality. This is a dangerous mindset that may impact your business negatively especially if partnering with other parties plays a huge role in your company’s growth.
Hence, every time your company plans to start contracting with a party, it is vital to establish the goals and standards expected to be adhered to by both parties. What are the real purposes of your partnerships? How do both parties benefit from the partnership? What are the metrics and achievements expected from each other?
All of these questions have to be conveyed clearly so that both parties are aware of their role and the benefits gained. It would be such a loss if only one party contributes, while the other gaining benefit without pouring much of effort from their part. Strictly mention that failure in following the terms mentioned may result in termination of contracts.
9. Balancing Information Security and Visibility
Some documents related to the contracts established between your company with other parties may be confidential, while some may be allowed to be given easy access to. Learn to differentiate which documents are sensitive or not. Confidential documents should be kept securely, only certain personnel are permitted with access. Important documents that need constant reviewing by both parties, on the other hand, should be stored in accessible storage to ease the process of retrieval.
In ensuring proper security of your contract documents, you may want to utilize a secure storage system accompanied with strong verification of accessor. Most companies nowadays prefer cloud-storage, that can be accessed regardless of time, place, or distance. Contract managers may also upgrade the system where each document is stored according to their importance and confidentiality, every level is given different levels of access.
10. Monitor Your Business’s Finance
One of the goals of establishing contracts with another party is to save costs. When negotiating for contract creation, pay attention to your company’s budget. Does partnership with the vendor provide more profit or loss for your part? Pay attention to the fees agreed by both parties. If the expenses exceed your budget, it may be best to look into the other party with similar purposes as the previous one. Narrow down the list of potential partners by considering all these aspects accordingly.
Negotiation and signed contracts aside, it is also crucial to constantly monitor your finance standing. Financial metrics or standards should also be a custom for your business when reviewing contract compliance.
11. Supervise Performances
After a contract has been established, both parties are expected to provide mutual benefits for the growth of both businesses. How do you know is your partner is doing their parts, abiding the terms agreed on?
In supervising performances, providing a precise KPI may help so that the other party is aware of the situation that may lead to penalties to their part. Several types of performances need to be monitored continuously to ensure that the partners are contributing to the expected goals.
Supervising the performance of your partner will determine whether they meet your company’s expectations. This will determine whether you want to prolong your collaboration and decide the contract renewal. Poor performances from the other party may cause termination in contracts.
That sums up the eleven examples of practices that may be implemented in a company to effectively improve their contract management. A well-managed contract will bring a lot of advantages. The contract is the major factor in your business’s profitability as its main focuses are on revenue and expenses. Efficient management will build a strong business partnership that may last for a long term.
Contract managers play a huge role in managing the contract established between their company with their potential partners or customers and even their employees. Hence, it is truly important in maintaining good practices while managing a contract not only to sustain a longer partnership but also for the sake of business growth. These eleven practices may serve as what you need in case your company intends to further refine your contract management.