Contract management is a business process performed to create, implement, and evaluate the contracts to make the most out of business performance and lessen risk.
Contract management is the key to your business. Contracts are the legal requirement that determines stakeholder relationships of the business, timelines for projects, pricing structures, warranty provisions, the scope of work, rights and obligations etc. Keeping in mind how critical contracts are, effective automated contract management software improves the organizations’ performance. Likewise, if the contract management is shapeless, it leads your business to numerous financial and operational risks.
The role of contract management is also changing. It’s no longer just filing documents; contract management involves understanding every feature of a contract’s development to extract expressive data insights. Businesses engage in a contract life cycle that drives their performance and know-how to achieve their goal better. Different contract management software tools evolve from an active record-keeping structure to an enterprise-level core structure solving business risk, costs, and the chase of revenue growth.
Benefits of Contract Management
Helps in the working of the business
Well-organized contract management helps the working of the organization work easier – it grows the business expectations; the machinery required for their fulfilment allows you to check how the structural objectives are met. The visions from contract management also help find areas for income optimization and cost minimization.
Improves useful efficiency
Best-in-class automated contract management software includes numerous tools that automate the procedure of handling contracts. Decreasing manual efforts expands business productivity and the chances of any faults. The employees can concentrate on more strategic contract management features, including checking contract performance, recognizing areas for development, etc.
Improves visibility and reduces maverick spending
By organizing the appointment of a business with its investors, especially the suppliers, contract management make simpler performance tracking and transactional. It rises the spend visibility and expands the transparency of where precisely the finance is going. Nonconformist spending is a key issue that harms many businesses, and higher spent visibility help control these undocumented expenses. By rising spend visibility, contract management also helps you find higher cost savings chances for your organization.
Increases visibility of suppliers
Suppliers form a vital part of most businesses as most organizations include suppliers for the delivery of goods and services for simplifying their performance. Contract management tools help track the suppliers, evaluate performance based on the conditions stated in the contracts, and recognize all the supplier risks. Additionally, it acts as a device for building long-term, cooperative relationships with the suppliers resulting in valuable interactions.
Stages of Contract Management
To guarantee effective contract management, it is vital to identify the steps of contract management, which are used to put a system in place. The cycles and phases of contract management differ based on the type of business and how it works; however, a general outline design is possible.
Identify objectives and goals and define risk.
Before any contract is drafted, it is vital to understand the objective and goal of the business. It helps set proper opportunities for both parties and effectively estimates how the contract will fulfil the business’s requirements.
Additionally, it is vital to define and understand the stakeholders’ risk appetite to set suitable performance opportunities and reduce the probability of risk throughout the lifecycle of the contract.
Draft the contract
Once the objectives and expectations of the business are identified, defined, and communicated properly, the enlisting process of the contract beginnings. Collect all the supporting documents and information required, and if the organization continues any, use updated standardized templates that adhere to all legal and organizational demands. Drafting a contract is a critical process as any level of uncertainty leads to business losses.
Negotiation
Once the contract is drafted, the negotiation among the interested parties starts. This process includes what every party wants from the contracts regarding the rights and obligations, pricing structure, renewals, termination, terms and conditions, warranty provisions, etc. Ensure all the accepted changes during the negotiation process are effectively tracked for incorporation.
The negotiation procedure should preferably be shown so that all included parties are communicated with transparency and trust. An added benefit is that the business builds long-term, collaborative relationships resulting in synergies for improved performance.
Finalize the contract
Once the negotiation stage concludes, and the contract is corrected, including any changes, the contract goes out for approval by all the relevant teams. The organization needs to have a proper hierarchy of the approval process from various types of contracts to guarantee that approvals do not hinder the contract development cycle. Once all the relevant teams finalize the contract, the execution starts based on all the conditions mentioned in the contract.
Manage obligations and audits
Contract management tools don’t end when the contract is executed. Post-execution, it is vital to confirm all the involved stakeholders fulfil their responsibilities about their payments, performance, timelines, etc. Managing the responsibilities allows compliance to all the specifications and offers that meet the business demands.
Manage contract termination and renewals
As the contract comes with a closing date, it is vital to keep renewals or termination. Missing contract renewals result in significant losses due to long-term relationship building and interactions, missed revenue expansion opportunities, etc. Additionally, it suggests the organization must perform a new procedure for the same contract requirement.
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