In previous posts, we’ve talked about how contracts are an important part of administering your business operations and how contract management software is a leading tool to help you stay organized. Maybe that’s why you are investigating – or have even already purchased – contract management software.
Implementing a solution, however, isn’t just about importing contracts to have electronic copies and then maybe setting a few alarms to remind you of key dates. To proactively reduce risk and business liability, and maximize operational efficiency and profitability, you need to practice effective contract administration – the ongoing governance of each contract.
Contract Administration Defined
Contract administration comprises a broad range of ongoing tasks, but these are key tasks that lead to key benefits:
- Contract maintenance and change control
- Charges and cost monitoring
- Ordering, payment, and budget procedures
- Contract performance reporting
A full-featured contract management solution can help you and your team reduce the time to complete these complex tasks, resulting in quick administrative cost savings. By following clear administrative procedures during the full lifecycle of each contract, you can minimize misunderstandings or confusion over who is responsible for what and when it should be done.
Contract Maintenance and Change Management
Some situations dictate changes to contracts, and contract documentation must be updated to accurately reflect any new arrangements. The ability to authorize different types of changes is often delegated to different people and seniority, so there should also be documented internal procedures on those responsibilities. Even if a company doesn’t have a clear policy on this, however, a contract management solution should offer the ability for extensive documentation notes – and the ability to link to or store related documents as well. Documented (and shared) changes ensure there are no “nasty surprises” when it comes time for payments or performance reviews.
Charges and Cost Monitoring
Why should someone who is not in billing monitor charges and costs on a contract? Because invoices and bills can contain errors – mostly completely unintentional. Nonetheless, let’s say there is an agreed upon contract price for a product, but a billing error (a “fat finger” mistake) moves a decimal point on the per item cost. No one in the accounts payable department sees the original contracted price – they see just what’s on the bill. That’s just one example. The point is, recording a history of costs and charges will help short cut mistakes before they become very big problems.
Ordering, Payment and Budget Procedures
Internal budget rules are sensitive creatures. They need care and feeding, and some times they need to learn new tricks. Internal budget rules change all the time, and keeping up with procedures and rules on approvals and reviews can be difficult. Some budget rules may apply to some contracts; other rules apply to others.
If users of contract management software have the ability to access and review related documents and notes (for instance those related to budget rules), mistakes such as overpayments or unapproved payments can be prevented.
Contract Performance Reporting
If you don’t report on the performance on your contracts, you may regret it when it comes time to renegotiate. This is why it’s called contract “management” and not contract “file-and-forget.” This need not be an onerous process either. Simply using record notes or custom-made fields or custom pull-down menus can make contract performance reporting fairly easy. If you are recording performance data in text notes that includes other information, it can get messy. That’s why having the option to create custom fields or pull-downs is so important. Easy access to key data leads to easy reporting.