Ignoring Contract Management Reduces Profitability
Contracts are the lifeblood of business. They facilitate and govern virtually every B2B transaction conducted.
Yet most enterprises are too lax in their management of contracts throughout the contract life cycle — from creation to monitoring of provision compliance. Inexplicably, many enterprises don’t focus on minimizing costs and maximizing revenue through astute contract management during the life of their contracts with suppliers and customers.
Almost every contract has deadlines that must be met to avoid penalties, yet many enterprises fail to keep these deadlinesoften because of poor contract oversight rather than operational limitations.
Conversely, bonuses are frequently available for meeting targets by certain deadlines, yet these deadlines are missed — or bonuses are never claimed — because the enterprise has no system in place to manage this opportunity. Sometimes, enterprises are owed penalties but don’t collect because they’re not paying enough attention. Revenue is being left on the table due to inadequate contract management.
Poor contract management can also lead to legal and regulatory costs, which are sometimes substantial. Failing to ensure compliance exposes the enterprise to considerable risk.
Automation Supports Emphasis on Contract Management
For enterprises that realize that contract management needs to be tightened, contract management software provides critical assistance — working to provide reminders of milestone dates, speeding up the contract creation and approval process, reducing human error, and ensuring contract consistency and compliance.
Consider the reliability and efficiency of an automated, digitized contract management system compared to a system that still depends largely on paper.
“Most organizations do not like to admit it, but the ‘sign and forget’ attitude is commonplace with all types of contracts,” observes Forbes contributor Ben Kerschberg in his article “Legal Contract Management and the Modern Enterprise” on Forbes. com. “Once a contract has been negotiated and approved, a paper copy is typically signed and archived either in filing cabinets or in off-site storage. In some cases details of key clauses, commitments, and obligations are provided to the relevant personnel throughout the business in a timely fashion, but this is an exception rather than the rule.”
With contract management software, on the other hand, contracts are never stuffed into file cabinets and forgotten. They are active in the system throughout their lifecycle, including post-sale. Throughout a contract’s life, the contract management software facilitates coordination between internal business units and with customers and/or suppliers.
The System Determines the Outcome
Despite the numerous benefits of automated contract management software, enterprises should be careful not to expect contract management software to fix a broken system.
Any enterprise with strong contract management has a well-designed contract management system, with well-defined contract flow and responsibilities, backed by executive-level emphasis on efficient contract management. Before implementing contract management software, an enterprise needs to first evaluate its system, make adjustments to contract management process and strategy as necessary, and then customize the software to fit its needs, goals, and capabilities.
Another key to success is the contract management software’s integration with all relevant business functions. Stakeholders in every department should understand the importance of contract management, and the automated contract management system should be integrated into the enterprise’s other relevant computer systems (e.g., enterprise resource planning, accounting).
Even the best enterprise contract management software won’t overcome fundamental process issues, lack of buy-in, and lack of integration into the enterprise.
Contract management is an essential aspect of almost all B2B operationssometimes the most important — and it should be given a corresponding level of focus, including software automation for crucial support.