When you enter into a business contract: 7 tips
Concluding a business contract is more than preparing a formal paper for the sake of appearance. In this process, there are also some pre-signature points like negotiations; besides, you should take care of tracking and renewal.
Corporations that conduct 40,000+ contracts at the time hire contract managers to be responsible for contractual relationships with their partners and suppliers.
SME owners are themselves responsible for the sustainability of the business arrangement. If you run a small business, follow the tips on how to effectively manage contracts in our new article.
Why Contract Management Is Important
A written contract carries out basic tasks. You record the rights and responsibilities of both parties, that is, you clarify your arrangement and mitigate business risks.
Risks are mitigated, in particular, by legal enforcement of the contract. If something goes wrong and another party breaches the terms agreed, you will normally take legal action. If it causes some loss or you don’t get paid, you will get compensation through a court as a last resort.
Between the 2 extremes of writing a ‘necessary minimum’ doc for trusting each other parties and going to the court, however, there are other aspects of doing business. How will the conclusion of the contract affect your relations with this counterparty/ future clients? How the contract will be fulfilled?
These questions are answered by contract management. In fact, you invest in the business relationship around the signature of the document - pre-award and post-award phases - and get better performance of the contract and your company.
What To Do on Pre-Award Phase
Pre-award phase comes from the initial decision to cooperate with another company or a person and culminates in the signing of the document. This phase prior to a final version being out on the table relies on drafting and negotiations. Here are the tips:
Step 1. Initiate a contract
When a new business relationship begins, one party initiates a contract to set up the guardrails for it. Creating a contract from a scratch appears to be a long and tedious task. Meanwhile, you can use an online contract management service to save time.
There are automated systems, so where you need just to choose a template and answer the questions in the form. This draft will be normally edited several times, still, you will have more control over it.
Step 2. Know your counterparty
If you got stuck at some point in drafting a contract or were proposed to sign the draft made by the other party, do a background check. You can use online services to check the company’s legal registration in the EU or rating sites.
There are area-specific exchanges and databases. After all, you can directly ask your partner for info about existing commitments and related documents to evaluate his capacity to fulfill a new agreement.
Step 3. Get ready for negotiations
Even if a business arrangement seems to be unambiguous, some bottlenecks may occur. Learn who is a person who has the authority to make decisions on the contract and who can answer specific questions, e.g. if you conclude SLA, at your counterparty.
Define your positions and do not hesitate to negotiate the contract terms to increase the value of your service or upsell.
Edit the draft contract after negotiation rounds and try to make changes visible and easy for comparison. A contract management service would be helpful here to keep the structure of the document by editing.
Step 4. Start the contract lifecycle
A concept of a contract lifecycle lets businesses evolve from the conclusion of any new contract. Basically, you record what you learn from this phase of contact management for next time.
As like what information you need to request from a counterparty for contact or how to change the first draft you send, for example. You describe the practice and keep the records in your library of files for clients. It helps you to organize the process better and faster next time.
Post-Award Phase Contact Management
With the paperwork passed and the final version signed, the process enters the post-award phase. Post-award is an ongoing phase throughout the duration of the contract. This phase is about tracking and maintaining your contract, while maintenance consists of renewal and amendment rules.
Step 5. Track and audit the contract
Although it’s not so common in small companies, tracking the performance of the contract increases your efficiency. Outline some points to go back to the document and do a regular audit.
The high bar is to check whether you’re getting the maximum profit and are interested in continuing the partnership. If so, you can consider the next steps as like, again, increase your value or upsell.
The low bar is to check whether the contract suffers delays or small breaches and alert your counterparty of the consequences before it incurs additional costs to your business.
Step 6. Agree on revisions
It goes without saying that the contract must contain clauses on revisions. You cannot foresee all the possible changes either internally or externally, but you can budget time for review, discussion, and making amendments.
Take in mind that revisions may affect subsequent schedules and deadlines. Also, there must be a system to amend the contract apart from revision times, because some ‘open clauses’ or missed items may be detected anytime.
Step 7. Consider renewing in advance
Back to tip #4, close a contract lifecycle by making records of this contact performance in general and a short summary. Then, you will be able to considerably choose - to renew or terminate the document.
It often happens when you partner with bigger companies in particular. They have automated workflow and do not pay attention to the expiry of one of the thousands of contracts. So small businesses miss renewal opportunities and lose potential revenue.
Contact Management Solution for SMEs
A small company often faces a need to optimize contract management when it cooperates with big or state-owned enterprises or manages multiple contracts with freelancers. Since full-fledged contract management (CM) software is off-limits, they mix automated CM service with manual monitoring.
On Enty, you can use automated contract management along with 7+ essential back office services. Do not waste time creating a proper template from a scratch. With the ready-to-use form, you will be able to generate the first draft in a matter of minutes.
Free up a number of man-hours on paperwork and invest it in what brings new value to your business.
