Contract management is the backbone of any business. Every major decision, partnership, and transaction is backed by legal paperwork that holds all parties responsible. In those sheets of paper, you have a wealth of information that can make or break your business.
When you improve your contract management, there are ripple effects. It can boost employee productivity, decrease costs, and increase profits. The effects of better contract management may sound exaggerated, but try to put it into perspective.
What if you fail to notice your supplier holding their end of the bargain? Loss. What if your vendors’ ROI do not reflect accurate numbers? Loss. Failure to make changes in time for contract renewal season? Loss. Startups should pay close attention to the kind of contract management they have in place, and well-established businesses ought to reevaluate their position with it as well. Here are five steps you can take to improve your contract management system
Digitise Your Contracts
With the recent pandemic, it is easy to notice the weaknesses of the traditional contract repository system. Filing cabinets and physical company archives are a thing of the past, and 2020 just proves that even further.
Companies that have adapted well to the new normal of working from home, limited business opportunities, and no in-person meetings are those who integrated technology well-enough. The businesses that thrive are those that can work away from the office. The ones that can work away from all the conveniences and information that comes with it.
Businesses should look into digitising contracts and centralising the information. Digitising makes these contracts accessible anytime and anywhere, which does a lot to minimise missed opportunities. With a digital system, you don’t have to refer to physical contracts to make decisions.
All major enterprises use digital contract management systems. Some examples are companies like the American automaker, Ford, the British newspaper, The Daily Telegraph, and even the global software company, Hubspot. These three companies are in different industries, in different cities, but they all found value in modern contract management systems.
Extract The Metadata
When you have access to your contracts, the next step is separating the relevant information from the legal jargon. Metadata is “data on data,” it is the very essence of your contract. When you have your contract metadata, you can make well-informed decisions for your business in the future.
There are three ways you can go about extracting metadata. The first is creating an in-house task force dedicated to contract management and capturing metadata. The second is by outsourcing the work to a trusted third party for insight. And the last but not the least is by using contract management software that does the work through AI along with manual checks.
Your business metadata can make it easier to understand contracts at a glance and improve its searchability in the company. We can see this in action with the BBC. They are using metadata to create personalised recommendations on their platform. In the future, metadata will play a larger role with the content discovery, which will hopefully lead to a better viewing experience.
Even without an extensive archive like BBC’s, proper metadata can help you make sound decisions with your investors, suppliers, and vendors.
Continually Review Your KPIs
When businesses review contracts, they look towards the key performance indicators (KPI). As much as you want to stick to a set of KPIs, these things can change over time. If you haven’t updated your KPIs just yet or checked if they are still relevant in today’s market, then it is time to do so.
Avoid mimicking the KPIs of established companies without considering whether they fit with your company or not. These indicators are very personal and tailor-made for each company. According to Serenity Gibbons on Forbes, your KPIs should not be exclusive to the company’s bottom line. It would help if you also created, monitor your employees KPIs. She recommends including customer satisfaction, employee turnover, and internal communication ratings.
With this in mind, think about your business, what creates results and the best way to measure it numerically. Revamped KPIs can better assess whether your business is properly meeting your goals. Clear numbers can also be an excellent benchmark for your employees.
Tighten Your Estimates
Digitised and centralised contracts mean that you have access to the right information, because of that it should be easier to plan. KPIs, vendor ROIs, and noncompliance–you can find all of this in your contract management system. The numbers should be very telling, any kind of estimate whether it is your work schedule, workload, or partnership expectations, should be informed with your metadata and history.
With the right information, you should be able to work with tighter margins. For example, with accurate vendor ROI, you don’t have to order your inventory with a lot of excesses. You can keep your storage/ warehouse from excessively stocking up on a product that does not live up to the claims. If you work with many different product lines, this can make a big difference at the end of the year.
Clear Communication Channels
Prioritise clarity above all else when communicating with your business partners and your employees. Limit the areas for misunderstanding. Besides having a clear history in your contract management system, you should also have emails or chat logs that are easy to access and understand as reference.
In times when remote work is necessary, this becomes all the more important. We forget that a lot of what we express happens with our tone of voice, facial expression, and body language. A lot of that is lost when work at home setups are at the mercy of blurry video feeds and poor internet connection. Work to establish a clear communication channel and enforce it whether you work from home or not.
Improving contract management is easier said than done. There are many factors you have to consider and plan around. However, once you get a working system in place, it is easy to work with these changes in place.