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Mar 11, 2024 · 9 min read
How to overcome challenges in contract management
Uncover the secrets to effective contract management and maximize business efficiency. Navigate all twists with Enty!
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- Contract management: what can go wrong?
- 1. Contract visibility
- 2. Contract drafting
- 3. Contract compliance
- 4. Contract tracking
- 5. Lack of contract standardization
- 6. Undefined handover processes
- 7. Contingency plans missing
- 8. Cost and scope creep
- 9. Lack of supplier performance information
- 10. Contract Value Loss: 10-15%
- How to take control of contract management
- Last thoughts
Contract management is an essential aspect of business operations, but it can also be a complex and challenging process. From maintaining contract visibility to dealing with supplier disputes, organizations face various hurdles that can impact their efficiency and profitability. In this article, we will explore the top challenges in contract management and what’s even more important - provide practical solutions to overcome them and streamline the overall experience.
Contract management: what can go wrong?
Managing essential documents known as contracts can often be a daunting task, leading to numerous challenges like:
- Contract visibility
- Contract drafting
- Contract compliance
- Contract tracking
- Lack of standardization
- Undefined handover processes
- Contingency plans missing
- Cost and scope creep
- Lack of supplier performance information
- 10-15% of contract value is lost
Let’s now look at each of these in more detail.
1. Contract visibility
Contract visibility refers to the ease with which businesses can find, review, track, and extract crucial information from their contracts. However, many companies struggle with this aspect, which results in inefficient contract management.
The ability to easily access and understand contractual information is essential for effective contract management. It enables businesses to stay on top of compliance requirements, monitor contractual obligations, and manage the contract lifecycle efficiently.
For instance, having clear visibility into a contract's lifecycle helps companies to identify potential bottlenecks, and address these issues promptly. Additionally, contract visibility can provide valuable insights into contract performance, helping businesses make informed decisions.
Improving contract visibility with contract management software
One effective way to improve contract visibility is by using contract management software. Platforms like Enty consolidate all contracts into one central panel, making it easier for businesses to access and manage them. Moreover, this software features advanced search capabilities, making it easier for users to locate specific contracts. Additionally, with such platforms you can set automated reminders for contract renewals or expirations, further enhancing contract visibility.
2. Contract drafting
Drafting contracts is another common challenge faced by businesses. This process involves creating a legal document that outlines the rights and responsibilities of all involved parties.
Contract drafting can be a complex process, often leading to several potential issues:
- Lack of consistency in language and clauses can cause confusion and lead to potential legal disputes.
- Documents can easily be misplaced or outdated versions used, leading to potential compliance issues.
- Drafting contracts across multiple tools can result in data loss, making it difficult to track changes and revisions.
One effective solution to these challenges is the use of standardized contract templates. Enty templates provide a consistent structure for contracts and other types of documents, helping to ensure that all necessary clauses and terms are included. Moreover, they can save time by eliminating the need to draft each contract from scratch.
3. Contract compliance
Compliance is a crucial aspect of contract management - it ensures that all contractual obligations are met and that businesses adhere to relevant laws and regulations.
Failure to comply with contractual obligations can lead to legal disputes, financial penalties, and damage to a business's reputation. Therefore, it's essential for companies to have procedures that ensure contract compliance.
The choice for such a tool often falls on implementing contract management software like Enty. These can automate compliance checks, flagging any potential issues for review. Additionally, it can provide audits and AI contract reviews, making it easier for businesses to demonstrate compliance during audits or legal proceedings.
4. Contract tracking
Contract tracking involves monitoring the status of contracts throughout their lifecycle. However, poor contract tracking can lead to various issues, including delayed contract execution (or the lack of execution at all), and increased risk.
Without effective contract tracking, businesses may struggle to:
- Monitor contract performance and ensure that all parties are fulfilling their obligations.
- Identify and address potential issues before they escalate.
- Meet contract deadlines, such as renewals or terminations.
With Enty, you can streamline contract management processes, starting with determining the type of contract that is right for you - by taking a quick quiz, and ending with esigning them - all this in one place with a convenient management system. This not only improves efficiency but also helps businesses mitigate risk and ensure contract compliance.
5. Lack of contract standardization
Standardizing contracts can significantly streamline contract management processes, reducing the time spent on contract negotiations and execution. However, many businesses struggle with this aspect of contract management.
Standardizing contracts can offer several benefits, including:
- Reduced negotiation times: By using standardized contract terms, businesses can minimize the time spent on negotiations.
- Increased efficiency: Standardized contracts can simplify the contract creation and execution processes, improving efficiency.
- Lower risk: Standardized contracts can help ensure compliance and reduce the risk of legal disputes.
Achieving contract standardization
- Contract management service Enty offers is a convenient way to achieve standardization, providing businesses with customizable contract templates. This not only saves time but also helps ensure that all contracts adhere to a consistent format and include all necessary terms and clauses.
6. Undefined handover processes
Smooth handovers between different stages of the contract lifecycle are crucial for effective contract management. However, many organizations struggle with undefined handover processes. This results in miscommunication, delays, and confusion regarding responsibilities.
To overcome this challenge, organizations should establish clear handover processes that outline the roles and responsibilities of each stakeholder during the transition between contract phases. This includes clearly defining the handover points, documentation requirements, and communication channels. By ensuring that all parties involved understand their roles and responsibilities during each stage of the contract lifecycle, organizations can facilitate seamless transitions, minimize disruptions, and maintain high levels of contract performance.
7. Contingency plans missing
Contract management should include contingency and risk mitigation plans to address unforeseen events or potential risks. However, many owners fail to incorporate these plans into their contract management processes, leaving them vulnerable to disruptions and financial losses.
To overcome this challenge, organizations should proactively identify potential risks and develop contingency plans during the contract negotiation and drafting phase. By considering various scenarios and outlining mitigation strategies, organizations can minimize the impact of unforeseen events on contract performance. These plans should be clearly documented in the contract and regularly reviewed and updated as needed. By having robust contingency and risk mitigation plans in place, businesses can effectively manage uncertainties and protect their interests.
8. Cost and scope creep
Cost and scope creep can pose significant challenges to contract management. The former refers to the gradual increase in costs beyond the initially agreed-upon budget, while scope creep involves the expansion of project scope without corresponding adjustments to the contract terms and pricing.
To overcome this challenge, organizations should implement effective change control processes that require formal approval for any changes to the contract scope or budget. This includes documenting change requests, assessing their impact on the contract, and obtaining the necessary approvals before implementing any changes. By closely managing changes and ensuring that they align with the contract terms, companies prevent cost and scope creep, maintain budget control, and avoid disputes with suppliers.
9. Lack of supplier performance information
Another common challenge in contract management is the lack of supplier performance information. Without accurate and up-to-date data on supplier performance, organizations may struggle to evaluate and manage their suppliers effectively. This can lead to subpar performance, missed contractual obligations, and increased risks.
To overcome this challenge, organizations should implement a robust supplier performance management system. This system should include key performance indicators (KPIs) and service level agreements (SLAs) that are closely aligned with contract requirements. By regularly monitoring and assessing supplier performance against these metrics, you can identify areas for improvement, address any issues promptly, and ensure that suppliers meet their obligations. Additionally, leveraging analytics and reporting tools can provide valuable insights into supplier performance trends and help you make data-driven decisions.
10. Contract Value Loss: 10-15%
Last but not least, the challenge in contract management is the loss of contract value. Studies have shown that organizations may lose 10-15% of the contract value due to various factors such as missed savings opportunities, non-compliance, and inefficiencies in contract administration.
To overcome this challenge, organizations should adopt an automated contract management solution that streamlines contract processes and enhances visibility. By leveraging contract management software, you can optimize contract performance, identify potential savings opportunities, and ensure compliance with contractual terms and obligations. This proactive approach enables organizations to minimize contract value loss, maximize cost savings, and improve overall operational efficiency.
How to take control of contract management
To take control of contract management, organizations need to implement a comprehensive approach that addresses key areas of contract administration and performance. Here are some practical steps to establish effective contract management:
Establish a coherent monitoring function
A coherent monitoring function is essential for tracking contract performance. This includes monitoring KPIs, SLAs, risks, and overall contract compliance. By establishing a robust monitoring system, businesses can identify deviations, address issues promptly, and ensure that contractual obligations are met.
Implement change and dispute management functions
Change management and dispute resolution are critical components of effective contract management. These functions help keep contracts up to date, manage changes effectively, and resolve disputes in a timely manner. By implementing dedicated change and dispute management processes, organizations can maintain contract integrity and minimize disruptions.
Categorize contracts by value and complexity
Categorizing contracts based on their value and complexity enables organizations to allocate resources effectively. High-value contracts may require dedicated resources and closer monitoring, while lower-value contracts can benefit from automation and standardized processes. By categorizing contracts, organizations can prioritize their efforts and allocate resources accordingly.
Implement IT tools for contract management
Implementing IT tools specific to contract management (and the rest of your back-office!) can streamline processes and improve efficiency. These tools can include contract repositories, document management systems, and automated notification systems. By leveraging Enty services, organizations can centralize contract-related information, automate routine tasks, and enhance collaboration among stakeholders.
Embrace continuous improvement
Continuous improvement is a fundamental principle of effective contract management. By embracing a culture of continuous improvement, organizations foster innovation, drive efficiency, and enhance contract performance. This involves seeking feedback, analyzing performance data, and implementing process enhancements to optimize contract management practices continuously.
Last thoughts
In conclusion, contract management poses various challenges for organizations, but with proactive strategies and the right tools, these challenges can be overcome. By implementing automated contract management services like Enty, establishing clear processes, and leveraging technology, organizations can maximize the value derived from their contracts. Moreover, Enty offers innovative features like AI contract review, as well as advanced tools to streamline the rest of your back-office processes.
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