Contract management is the process of managing the development and implementation of all contracts, whether they’re with customers, vendors or partners. It’s a crucial part of running a business because it helps you ensure that everyone’s on the same page and that there are no problems in the future.
Contract management involves managing the development and implementation of contracts within your company. It can be used for any commercial contract as well as statutory documentations such as affidavits.
Contract Management is an important component in the business world and can have a significant impact on your bottom line.
- In this article, we’ll look at what contract management is, and why it is so important for any and all businesses.
Considerations in Contract Management
When it comes to contract management, there are three main things that need to be considered:
#1. The contract itself
This includes reviewing contracts for accuracy and completeness before they’re signed by both parties. It also includes maintaining records on all agreements made between parties.
This helps track your rights and obligations and ensures you don’t default on any of them and are able to follow through within the intended time.
#2. Contract enforcement
Drafting an agreement is not the end of a contract lifecycle. After a contract is executed, you need to track its enforcement.
This includes tracking when payments are due and keeping track of any violations made by either party in order to enforce the terms of the contract.
If you miss out on this, you may get sued. Plus your business partners or suppliers may default on their obligations and you wouldn’t know or be able to keep track of the same.
#3. Contract compliance
This includes ensuring that all employees involved with a particular contract adhere to its terms without fail.
So, Why is Contract Management so Important?
In a nutshell, having a thorough contract management system is essential if you want your business to grow without any recurring legal and strategic problems.
Improper Contract Management Results in…
- Businesses lose out on 9% of their top-line revenue due to improper and inefficient contract management.
- Your business is set up on a base of contracts. Managing your business will become extremely difficult and inefficient if you don’t have a contract management system and protocol set up in place.
- Keeping up with regulatory compliances and legal obligations becomes all the more tedious and expensive.
- Your organization loses out on legal knowledge building and this leads to poorer commercial negotiations in the long run.
- Your internal audits become inaccurate and your business runs the risk of being a victim of fraud.
- You fail to use data analytics to your advantage.
Explaining Why Contract Management is So Important for Businesses
#1. Proper Contract Management helps reduce Expenses
Contracts are essential in any firm, from third-party vendors to partners and workers. Contracts and agreements are believed to regulate 60-80% of corporate processes, making them critical to the proper execution of most business functions.
Contract management guarantees that you and your internal teams are aware of what has been agreed upon and by whom.
#2. Efficient Contract Management helps ease Compliances and Regulatory Procedures
Regulations and compliances are a real pain for most businesses.
According to surveys, it has been noted that businesses often are forced to spend around 4% of their revenue complying with regulations. In terms of the entire economy, around 12% of the US GDP was spent on regulations in the US, and in the UK, it was estimated to be north of 10% of the GDP (in 2012).
Efficient contract management can help companies stay compliant with local laws and regulations by automatically collecting information about their contractual obligations from multiple sources such as emails and spreadsheets into a central location.
This ensures that all relevant information can be easily accessed when needed for drafting or reviewing a contract without having to go through multiple databases or systems.
Having a proper contract management system also helps make it easier for your business to meet regulatory requirements when entering into new contracts with customers, employees or suppliers by ensuring you have standard templates based on industry-standard or existing agreements within your organization.
This is all the more important for technically more difficult and sensitive contracts like finance lease agreements, manufacturing contracts, founders’ agreements, share purchase agreements (more specifically known as stock purchase agreements in the US) etc.
This eliminates the need for manually creating each contract from scratch every time. Also, if you do not have a contract management system, you need to hire consultants like us, to create contracts for you each time, even for extremely similar purposes, which can be a big drag for your finances, especially if you are a small business.
That’s why we always recommend our clients create a proper contract management system for themselves.
#3. Contract Management helps build knowledge on Business Obligations, KPIs and Overall Tasks among Employees
Contract management helps build employee knowledge on business priorities, obligations and helps build overall company knowledge management.
It is an important process for all businesses and organizations because it ensures that the company maintains control over its agreements and commitments.
It helps employees in diverse departments keep a tab on the following aspects with regard to their projects:
- Ensuring that contracts are signed at the right time
- Identifying key contract terms and conditions
- Managing disputes with customers or suppliers
- Creating compliance reports regarding legal aspects of contracts
It also helps sensitize your employees on the consequences of not having adequate contract management in place, such as:
- Lack of visibility into future spend (and therefore cost)
- Risk to reputation and brand image if non-compliance occurs
- Loss of control over suppliers if they fail to meet agreed contractual obligations
#4. Contract Management helps Conduct Audits and reduce Chances of Fraud
An important benefit of a contract management system is auditing and compliance. A contract management system can be used to conduct an audit on a regular basis to ensure that all vendors are adhering to their contractual obligations. This ensures that there is no fraud or corruption involved with any vendor.
Contract management helps reduce the likelihood of fraud because it creates a system for monitoring contracts and making sure, they’re up-to-date with current accounting policies.
A contract management program also provides an audit trail when there are questions about whether or not someone has been paid properly or whether there were any changes made to the terms of an agreement without proper authorization.
A well-developed contract management system includes:
A standardized process for reviewing all new contracts before they’re signed. This includes identifying potential problems with each contract before signing it, so you can take steps to prevent them from happening again in the future if possible.
#5. You can use Data Science to Automate and Improve Upon Your Contract Management Systems in the Long Run
Data science can help by automating and improving upon your contract management systems in the long run.
Here are some ways that data science can boost your contract management system:
#1. Predicting potential issues before they happen
Data science can predict potential issues before they happen by analyzing current contracts and comparing them to similar ones. This allows you to spot trends in customer behavior and anticipate future problems before they arise.
#2. Improving customer satisfaction
By using data analysis tools like machine learning and natural language processing (NLP), you can identify patterns in your customers’ needs and desires — then meet those needs more effectively than ever before. You’ll be able to provide better service and save money at the same time because you’ll be able to anticipate customer needs before they even know what they want! That’s how you keep customers happy and coming back for more!
#3. Automating routine tasks
When you’re working with hundreds or thousands of contracts every day, it’s easy for mistakes to slip through the cracks.
#4. Text analytics
You can use text analytics to analyze the language of your contracts, which will give you insights into their purpose and how they should be interpreted. You can also use natural language processing (NLP) techniques to interpret the meaning of specific words within legal documents.
#5. Data visualization
Data visualization allows you to quickly spot trends and anomalies in your data without having to read through each individual document. The visualizations help you identify trends that may not have otherwise been apparent if you were just looking at raw numbers or word counts.
#6. Natural language processing (NLP)
NLP allows you to analyze much larger volumes of text than traditional methods like keyword searches do, since it can understand context and intent within sentences better than humans can.
With NLP, you can analyze the full text of all your contracts rather than just looking at keywords or sentence fragments.
#7. Automate Contract Renewals
Data science can help automate the renewal process so that you don’t have to worry about renewing contracts manually every year or two years.
The algorithm will automatically identify contracts that need to be renewed and send out emails or reminders so that people know when they need to renew their contracts. This saves a lot of time because no one needs to check manually if they should renew their contract or not.
Should You Use a Contract Management Software for Your Business
Contract management software is an application that allows businesses to track and manage their contractual obligations with third parties. The system will also allow users to automate tasks related to contracts such as creating and signing them, tracking deadlines and other events, sending reminders, managing changes and more.
Contract management software helps businesses in all stages of the contracting process, including:
#1. Agreement Negotiation
Contract management software allows users to create and manage templates for proposals, agreements and letters that can be used during negotiations with vendors, partners and clients.
#2. Creation of Contract
Contract management software makes it easy for users to create new contracts or edit existing ones by importing documents from other systems or manually entering content into fields within the application.
#3. Review of Agreements and Draft Contracts
Contract management software provides tools for reviewing contracts before signing them off on by all parties involved in the agreement. This includes reviewing signatures from multiple parties, which may include signatures from different locations around the world.
#4. Execution of the Contract
Contract management software allows users to execute agreements through electronic means such as email or faxing documents back and forth between parties involved in a contract transaction.
Wrapping it up
As you can see, all businesses should stress on contract management from the very beginning. It’s very helpful in the long-run. If you have any questions with regard to drafting contracts for you, drop in a comment and we will get back to you.
Or, you could have us consult for you. Simply, drop in an email at – email@example.com
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