Every business today deals with at least one contract. These can include anything from a simple written message with a signature, to complex contracts with numerous sections, clauses and sub-clauses. Whatever the case may be, contracts are the livelihood of a business as they can influence cash flow and specify agreements, terms of payment and more.
Keeping track of one contract may be easy, but imagine dealing with dozens, hundreds and even thousands of contracts. According to the Institute for Supply Management (ISM), a typical Fortune 1000 company has between 20,000 – 40,000 active contracts. Each one with different renewal or expiry dates, contact names and more – keeping track of contract details can become an arduous task. The act of simply finding a contract when needed may prove to be a frustrating and time-consuming undertaking.
This is where a Contract Lifecycle Management (CLM) software solution comes into the picture. In short, CLM solutions encompass everything from the bidding/procurement process, to the management of the resulting contracts. Software Contract Management solutions can facilitate the negotiation process between internal and external parties allowing them to collaborate until the contract is just right. Creating contracts from scratch or copying an existing one into the system is a breeze. And alerts and approvals ensure that key dates are remembered and that the proper people check contracts before they are released.
The Sarbanes-Oxley Act of 2002 is legislation created by the US Government to hold senior management such as CEOs and CFOs accountable for the accuracy and reliability of corporate disclosures. Senior management is responsible for adhering to strict new rules and reporting requirements in particular, sections 302, 401, 404, 409, 802 and 906 of the SOX Act. A Contract Lifecycle Management (CLM) solution can help companies adhere to compliance items and proactively monitor performance metrics.
So what should your business be doing to keep on top of contract management? Check out some industry best practices:
Having transparency in the contract lifecycle management process is vital in ensuring that pertinent information is shared amongst key stakeholders. A study conducted by the Journal of Contract Management shows that of the 100+ companies that they surveyed across the United States and Europe, 81% of respondents stated that they had difficulties simply locating specific contracts.
Having a central repository will keep all your contracts in one location making it easier to organize and retrieve documents as needed.
Ideally, a company can aim to have only one version of each contract, however in reality changes will be made, and new versions will be written. A CLM software solution with version control, allows users to edit text while still having the ability to view the older version. However, when creating a new contract or template, users can only select the newest version to ensure new items are included.
Users should be able to search easily for contracts by vendor, customer, supplier, etc. Such a process is hindered by a traditional paper/hardcopy storage system – electronic storage methods greatly help to facilitate the search process.
Knowing who to contact and what procedures to follow in the case of a contract problem (i.e. cost leakage, unfulfilled contract requirements, cancelled contracts, etc.) can be a tricky issue with many companies. Most businesses are too pre-occupied with dealing with obstacles as they arise rather than proactively monitoring performance metrics to assess and gauge contract risks. If a contract problem arises, would you know the financial impact and business implications associated with it?
An accurate audit trail can save companies from a lot of unnecessary nuisances. At the very least, a record should be kept of whom approved/edited each contract and the corresponding dates of each action.
Alerts and notifications should be sent to the appropriate people by the contract management solution when risks occur.
Integration of your contract management solution with your financial system is recommended so financial risks can be carefully monitored and cross-examined by both systems.
Stakeholders should have easy access to reports on performance metrics, contract and project status, etc. to mitigate risks as they arise.
With numerous deadlines and commitments that need to be managed, it is easy to occasionally lose track of a few. Something like a missed contract renewal date can negatively impact business relationships and cause a potential loss of negotiation power/missed opportunities.
Stakeholders should have access to an updated calendar listing important upcoming events, project and contract milestones, and deadlines. Users should be able to receive notifications and alerts through the contract management system and/or via email.
Integration of contract management and sales systems can help to increase revenues. By keeping track of contract start and end dates, companies can ensure that they only provide services while the contract is still active and collect the entire amount of money owed to them.
Centralizing contracts in one location allows employees to view which suppliers and vendors your company is doing business with in order to ‘piggy-back’ on existing negotiated rates. This practice will help to cut down on time spent on additional agreements outside of existing contracts.