4 Contract Management Questions to Ponder
Just like individuals, companies need to take a time for retrospection.
Here are four critical questions ro ponder that can go a long way toward improving your company’s contract management processes.
1. What is Your Contract Management Strategy?
Some organizations focus on developing clear guidelines for their responsibilities during their contracts. Others pay special attention to meet (or exceed) the minimum performance criteria. And there are others that are all about compliance.
No matter what is your contract management strategy, you should be able to explain it clearly. “Explaining clearly” means that you can articulate it in one sentence. If you aren’t able to do that, then how do you do expect your team of contract managers and support staff to have a clear idea of what that strategy is about?
Develop a clear, single sentence that explains your contract management strategy. Once it is ready, you can develop longer versions going into more details. However, that single sentence should provide the “tweet sized” summary.
2. Are Your KPIs Working?
Your Key Performance Indicators (KPIs) evaluate the success of your organization’s contract management processes. However, it’s just not a matter of measuring them and comparing them to those from past years.
You need to take a second look and evaluate those KPIs themselves. Those KPIs may be outdated or require some fine tuning. For example, an indicator requires you to input some data into an Excel spreadsheet that is using statistics (e.g. inflation, exchange rate) that have significantly changed from the time that they were set up on the spreadsheet.
Take a second look at those KPIs. If they are fine, then you have completed your due diligence. If not, your organization needs to do the necessary research to update those KPIs.
3. How is Your Cash Flow Doing?
When drafting your contracts, your team pays a great deal of attention to setting up clauses that protect your organization, encourage early payment from clients, and guarantee payment to suppliers. All this looks great in print, but is it all working in the field?
Some contract managers focus so much on closing new deals that often keep track of how many days it takes for dollars for work completed to arrive to the company coffers. While some people may argue that this is the job of the accounting departments, it’s very naive to continue focusing so heavily on clients that pay very, very late.
It’s important to keep a close eye on your cash flow cycle because the lending climate can only go one way: up. There are strong arguments that the low rates of previous years will go away. If you don’t have a healthy cash inflow, your financing options may become unsustainable.
4. Do You Need to Upgrade Your Contract Management System?
The reality is simple:
- Email is not a replacement for a contract management system.
- Excel is not enough for contract management processes.
- Word doesn’t provide the necessary audit trail and document history to maintain compliance and accountability.
The right tool makes your job much easier. An enterprise contract management system is a comprehensive tool, which incorporates all of the functionality needed to manage, track, and automate every single step within your contract lifecycle.
You need to determine whether or not it makes sense to delay an investment in a proper contract management system.