Contract management is all about binding, guiding, and setting the velocity for every transaction, agreement, and partnership in the business landscape. However, the market is continuously evolving, and we can visibly see the rise of new technologies.
For instance, in the procurement and supply chain industry, Gartner predicts that by 2027, 50% of organizations will support contract negotiations through the use of Artificial Intelligence contract risk analysis. Also, in their survey, 100 procurement leaders emphasized that contract lifecycle management is expected to be the area where Gen AI can have the most impact.
That’s why businesses should understand the significance of effective contract management, which ensures a shorter sales cycle and increased revenues. However, before you start developing contract management best practices, your priority should be identifying bottlenecks in your existing workflow and working through them.
What are the Risks and Consequences of Poor Contract Management?
Poor contract management can put your business at stake and cause various complications. Let’s dive into them:
1. Legal and regulatory implications
If your contract doesn’t meet legal obligations or compliance, you can be penalized by the government for breach of laws and policies.
2. Financial and reputation losses
Contract management includes deadlines, exceeding operational expectations, and ensuring that data security is intact. Your business may lose all of it with fragmented or unstable processes. Financial losses can be damages, legal fees, litigation expenses, and reputation could be bad word-of-mouth marketing.
3. Unauthorized access and loss of confidential data
We all know contracts hold crucial legal data of two parties related to any deal. From content creation to final sign off, businesses need to be careful of making contract accessible. With increasing cybercrimes, be mindful of unauthorized access can lead to losing your confidential data.
4. Increased disputes
Contract management is not only about managing and storing but also thorough analyzation of ambiguous terms, limited contract monitoring, inconsistencies, and improper record maintenance.
What are the Best Contract Management Practices to Reduce Risks?
1. Streamline the Contract Creation Process
A sophisticated contract lifecycle management method can greatly enhance productivity and efficiency. For your legal department, this is especially useful as it permits them to concentrate on more crucial tasks by utilizing uniform, preapproved contract language from a wide library of templates and clauses that are compliant with rules.
Using these preapproved uniform templates and clauses containing current, precise legal language that meets the rules supports your group working in law. Applying standardized terms, legal language, and vocabulary consistently in your contracts will reduce the time general counsel spends proofreading. This action accelerates the review phase and results in a more effective contract drafting process.
2. Establish Vendor/Supplier KPIs to Monitor Performance
Creating key performance indicators (KPIs) in contract management is very important because it offers a way to understand how well you present practices work and their influence on reaching business goals. When heads of departments have clear business aims and methods to measure them, they can make best practices based on data for achieving the desired results.
If some KPIs are missing, this could show that there were chances to save money that went unnoticed, or it could point out process inefficiencies that might be hard to identify without clear business expectations and objectives.
3. Set Contract Storage Security and Accessibility Requirements
Reliable modern contract lifecycle management (CLM) software solutions provide improved security and easy access to private contract data in a smooth method. These strong security characteristics, like single sign-on (SSO), audit trails, automation, and role-based access, ensure that only the correct people can enter your contracts.
CLM software aids your organization by checking the identities of workers, vendors, and stakeholders to guarantee that only approved users have permission to review or modify agreements and related papers.
A contract repository and management platform in one place makes it easier to access and see all the contract activities within your company. You can also set up different access controls, permitting users according to their roles or other criteria specific to your organization.
4. Simplify Approvals and Reduce TAT
Making the contract approval process simpler gives many benefits to your organization. It helps in faster buying of contracted services and products, making it more efficient in terms of time and cost. Also, simplifying this process aids better business relationships by decreasing the duration from starting talks to getting the final agreement approved.
When everyone works faster, the overall experience for both your clients and team members improves. Organizations that can react quickly and give approval instantly may use opportunities with short turnaround times more efficiently.
5. Ensure Compliance Reviews
To keep track of how well you’re following rules and regulations, it’s important to evaluate the compliance rate as part of your contract reviews. Look into different categories, such as local, state, or federal regulations. Make sure you observe compliance within each contract. Manage and monitor the terms throughout your agreement to ensure that what was promised is being delivered in terms of products and services being provided according to set rules.
Following industry and federal compliance regulations is required for many companies, and not meeting them can lead to serious penalties. Safeguard your business using automated contract management that includes audit trails, making tracking and evaluating compliance easier.
6. Analyze Contract Trends
Contract management increases your company’s power to obtain better outcomes in negotiations. Modern systems for managing contracts keep an eye on competitive vendor prices and advancements in technology, giving you market understanding. These negotiation techniques let you review contract terms before renewal and assess if they will still be advantageous for your business in the current market situation.
Legal Support World Has Your Back
Adopting best practices in contract management offers numerous advantages for businesses. It not only leads to substantial cost savings by enhancing efficiency but also reduces the risk associated with contracts.
LSW provides comprehensive solutions to address contract management challenges effectively. Our D.A.T. approach for contract lifecycle management services ensures that all contracts are standardized and comply with the latest legal requirements, reducing the risk of inconsistencies and conflicts. We automate workflows and streamline the contract approval process, reducing turnaround times and driving success.
