What is Contract Management?
Contract management is the process of managing agreements, from their creation through to their execution by the chosen party, and to the eventual termination of the contract. Key activities involve performance analysis against the contract terms to maximize operational and financial performance and to identify and mitigate financial and reputational risk through non-compliance with contract terms.
What are the benefits of Contract Management software?
Contract management software digitizes and stores all contracts into a central repository, providing a way for stakeholders, such as legal and compliance departments, to search for and review contracts, eliminating the need to manually locate and sift through stacks of paper manually. Contract Management software also manages access to contracts so that only authorized people in an organization can view any particular contract, improving security.
The software also provides alerts to key contacts when contract expiration dates are nearing, allowing businesses to decide whether to renegotiate or cancel their agreement and avoiding them being locked into contracts automatically rolling over from year to year at increasingly unfavorable terms.
Finally, contract management software can be used to track current spend against a supplier, by integrating it with other financial or procurement software systems.
How contract management works
- Managing service delivery: This ensures that products are delivered as and when they are ordered.
- Managing the relationship: Involves strengthening the contact between vendor and purchaser to allow for improved communication throughout the process of contract management.
- Managing the contract: The ongoing administration that ensures the day-to-day procurement activities follow what is detailed in the agreement
- Seeking improvements: Amendments and alterations are pursued within a procurement environment in order to improve efficiencies and generate an increase in profits.
- Ongoing assessment: Procurement activities are assessed continuously to ensure that contracts are honored, and all purchasing processes have been followed.
- Managing change: As part of a long-term procurement relationship, the changes in activities, requirements, or products need to be noted and handled effectively.
Managing renewal or termination: When a contract is due for renewal, taking proactive steps to understand whether the contracts should be renewed as is, re-negotiated, or terminated, based on future business needs, commercial attractiveness, and previous performance by the supplier.
Contract management best practices
- Standardize contract creation using a set of terms, conditions, and legal language that applies to a large subset of contracts.
- Set Contract Management KPIs and make your goals transparent to the entire business.
- Track contract approval time. This allows an organization the advantage of receiving contracted goods and services sooner, ensures a quicker move towards a positive relationship. Furthermore, the faster responsiveness means the business has an easier time seizing later opportunities.
- Set automated reminders to alert essential parties to review the document; this eliminates the risk of missing certain addresses in group emails.
- Make financial metrics a dedicated part of the business’ regular contract management reviews.
- Conduct regular compliance reviews. Neglecting this responsibility fails to protect the company against the risk of legal, industry, and external regulations.