Contract Management

Poor contract management drains revenue, hurts compliance, and leads to confusion. Shadow spend is on the rise, with Gartner estimating that 20-40% of all enterprise technology purchases lack formal approval. In 40% of businesses, employees are unaware of who is responsible for supervising contracts. To make oversight and accountability easier, organizations must adopt automation and data-driven practices. Read on to find the strategies that help overcome contract management challenges, bring spend under control, and help improve visibility. 

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What is Contract Management?

Contract management is the process of setting binding agreements between multiple parties. These agreements could cover deadlines, work, or legal, financial, and operational standards. As businesses grow and partner with others, contracts pile up. Managing and abiding by all these agreements then becomes complex. All stages of the contract lifecycle must be carefully coordinated, including: 

• Creation: Drafting initial terms and outlining obligations
• Negotiation: Discussing provisions to reach a mutual agreement
• Approval: Obtaining authorization from the correct parties for finalization
• Execution: Signing and implementing the contract
• Renewal: Reviewing and renewing or modifying the contract as needed

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Why Effective Contract Management is Critical

Strong contract management is vital to business success. Without it, companies struggle to spot duplicate purchases and could unknowingly agree to contracts with unfavorable terms, which could result in overspending. In the absence of proper contract management, it is possible that proper approvals are ignored, and issues like non-compliance, or poor vendor performance can go undetected. However, all of these can be avoided by creating a single source of truth for all contracts, you can gain complete transparency into the contract lifecycle. 

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Common Contract Management Challenges

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Lack of Centralized Storage and Accessibility

Contracts can be scattered across multiple locations – email inboxes, shared drives, and physical filing systems. This complicates retrieval and access. Without a single place to store and review agreements, teams are likely to overlook important details, miss deadlines, and waste time reconciling information. ‍

Minimal Automation

Many organizations still rely on spreadsheets and emails to manage contracts. This involves manually entering data, following up on approvals, and tracking progress, which introduces the risk of human error, and extends the time spent on processing contracts.

Poor Version Control

With numerous stakeholders suggesting frequent contract edits, teams may fail to identify or locate the most current document. Imprecise version control leads to confusion, creates the potential for legal disputes, and runs into other compliance issues.

Compliance and Regulatory Risks

Without the ability to systematically track compliance obligations within contracts, companies risk exposure to lost business, non-compliance, or even litigation. 

Approval Bottlenecks

Without a transparent approval process or process handoff, bottlenecks form, and they prevent timely contract execution. This can lead to missed business opportunities. 

Zero Visibility into Contract Performance

Tracking metrics like renewal dates, compliance clauses, and performance obligations is tedious, and time-consuming without a structured system. This can lead to financial losses as companies risk missing contractual obligations, renewals, or payments. 

Inefficient Reporting & Analytics

In the absence of real-time reports on the status of a contract, you can’t track any updates or changes. Limited data leaves you vulnerable to unforeseen contract issues. 

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How to Overcome These Contract Management Challenges

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Implement a Consolidated Contract Repository: Store all contracts in one secure, searchable location by using contract management software. This approach gives you more control, makes it easier to retrieve information, and reduces the risk of misplacing contracts. 

Automate Contract Workflows: Contract lifecycle management (CLM) software can automate tasks like manual data entry, auditing, updating, and editing information. Take advantage of renewal calendars with automatic alerts to never miss a deadline again. 

Version Control & Audit Trails: Ensure the most up-to-date contract is always available by implementing version control features within your CLM tools. This increases transparency, minimizes potential legal issues, and makes it easy for stakeholders to collaborate.

Ensure Compliance with Built-in Contract Templates: Deploy pre-approved templates and automated compliance checks within CLM software to meet regulatory standards, strengthening your compliance and establishing consistency in contract terms. 

Streamline Approval Processes with Clear Workflows: Set up straightforward approval workflows with role-based access to engage the relevant employees and decision-makers at each stage. A structured approach helps contracts move smoothly through checks, leading to fewer delays and faster approvals. 

Improve Contract Visibility with Dashboard Analytics: Use dashboards and reporting tools to track contract performance, upcoming deadlines, and compliance metrics. These insights help you detect and prevent shadow spend. They also help monitor usage patterns and compare contracted spend vs. actual for more accurate budgeting. 

Track Key Metrics with Customizable Reports: Track key performance indicators (KPIs) such as contract value, compliance obligations, and milestones. By monitoring these data points, you monitor performance and plan accordingly. 

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Best Practices for Efficient Contract Management

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Invest in Contract Lifecycle Management (CLM) Software: CLM software is critical for managing contracts, especially as you grow. It is easier to manage contracts from a single platform for creating, approving, and tracking agreements. Choose a tool that aligns with your organization’s needs, and considers factors like integration, automation features, and accessibility. 

Regularly Review and Update Contract Templates: Keep contract templates current as the legal and regulatory requirements shift to save time in duplicated efforts, and repetition. Consider assigning a team member or department to review templates periodically to verify if they are indeed up-to-date.

Develop Clear Contract Governance Policies: Establish structured guidelines for contract creation, negotiation, and approvals. Precise defining roles and responsibilities within the contract management framework promotes accountability and clarity for all parties involved. 

Training Teams on Contract Management Tools & Processes: Equip employees with the knowledge they need to use your contract management systems effectively. Provide ongoing training to keep teams up-to-date with any software updates or industry developments.

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Overcoming Contract Management Challenges with Technology & Strategy with Tropic

Intelligent contract management allows companies to reduce risks, ensure compliance, strengthen vendor partnerships, and identify cost-saving opportunities. Yet, many organizations face significant hurdles to achieving seamless contract oversight, such as fragmented storage, manual processes, and limited visibility into contract terms. The simple answer to surmount these obstacles is to choose an AI-powered spend management platform. With a single source of truth for all contract documentation, automated workflows, and real-time analytics, Tropic streamlines contract handling for maximum efficiency and insight. 

To future-proof your contract management and build sustained success, schedule your free demo today.