negotiation

Can you answer these 5 questions about your business’s contracts?

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Take a moment to think about your business and the vendor contracts that govern its operations. Can you answer these basic, yet crucial, questions?

  • Which is your most profitable contract?
  • Which is the least profitable?
  • Is your business paying for duplicated or overlapping services?
  • Which contracts are up for renewal?
  • Is your business already past the time to decline any auto-renewals?

If you can answer these questions quickly and confidently, congratulations. But there is a good chance that you don’t have an answer for some or even most of these questions.

It’s easy to think of contract management software as a “nice to have” administrative tool. But having a full-featured contract management tool will give you the kind of information you need to answer the above questions – and know a lot more about the true costs of contracts.

If you think of contract management software as a key reporting tool, you are closer to the mark than thinking of it as primarily “administrative” in nature. Reporting is a crucial step in the contract life cycle and one that can be automated and enhanced by using contract management software.

Contract Assistant, for example, has rich reporting functions. Knowing the importance of reporting to end users, Blueridge Software includes in the Standard Edition a library of starter report templates. At the PRO and Enterprise edition level, users get a rich starter library as well as a report generation tool – Report Designer.

Reporting even basic information on all your company’s contracts on a regular basis for review and analysis can really pay off. Depending on your management structure, contract managers may be required to report on the full spectrum of contract performance metrics, or may only be asked to deliver reports and notifications when exceptions are discovered. In either case, the information gathered from contract management software from the very beginning of a contract becomes the basis for all reporting, no matter the format or detail.

The flexibility of Contract Assistant, for example, allows for so much customization that you can gather data on select fields quickly and easily.  If you want to find out more about all the benefits of contract management software, download this complimentary executive summary report, “Contract Management Software – Reduce Risk While Saving Time & Money.”

Beware of the Evergreen Clause

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Unfortunately, some businesses only recognize the need for contract management software once a problem arises – when it’s too late to enact “an ounce of prevention.”

Here’s a perfect example: Consider the “evergreen clause,” or the autorenewal.

Investopedia defines the evergreen clause as: “A contract provision that automatically renews the length of the agreement after a predetermined period, unless notice for termination is given. Evergreens are often used for long term agreements such as memberships or maintenance contracts.”

How does this sneak up on the unsuspecting contract administrator? In an article on the website Mondaq, author Steve Dutton poses the situation of a business owner deciding to cancel the license agreement for a certain computer software which was purchased to improve productivity, but ended up not being effectively used.

Upon calling the vendor, the representative notifies the business owner that the license agreement does not allow a simple cancellation. Instead, the business owner is contractually obligated to continue paying for the software for another full year. The real culprits here are the terms and conditions of the software license containing the automatic renewal or evergreen clause.

Automatic renewals often come with a definition of when notice must be given to cancel a contract. The problem isn’t that evergreen clauses are inherently bad. It’s that notification dates for cancellation have a habit of being institutionally “forgotten” – unless there’s a serious problem.

Contract management software helps you shed light on these forgotten contracts in two key ways. First, you can customize notes and fields to record specific deliverables of vendor/service providers, thus giving you a history of performance. Second, you can set up automatic reminders for key renewal dates. This feature is in all Contract Assistant versions, and in the Enterprise edition you can even configure alerts to be distributed via email.

Setting an alert or reminder 60 to 90 days out from a renewal notice cut-off notice date should give you enough time to review performance and get input before contacting the vendor/service provider. At the very least, it may give your business the leverage it needs to alter a contract to meet your company’s needs better.

For additional discussion and recommendations about evergreen clauses, read this blog post by Law 4 Small Business.

It may not always be possible to avoid evergreen clauses, but you can certainly get ahead of any potential problems if you’re using good contract management software.

Hot topics in contract management solutions

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Contract Management Software

Contract Management Software

We started this blog just 18 months ago, so we thought this would be a good time to take stock of what feedback we’ve received from visitors. It is clear that readers have an interest in our blog, but the following are the three most popular blogs posted (so far, that is).

Top Three Most Popular Posts

  1. News Flash: Introducing Contract Assistant PRO Edition 3.7!
  2. Key Benefits of Contact Administration
  3. 8 Steps to Choosing a Contract Management Solution

What’s driving the interest in new versions, key benefits and how to select contract management software?

Taken together, these three topics are a snapshot of where many people in large and small enterprises find themselves: knowing there has to be a solution out there, and wondering what the real benefits are. After all, businesses today have more contracts than ever — and those contracts are increasingly complex. Add to that situation an ever-increasing pressure to drive costs lower and the result is longer-term agreements with suppliers of all types.

For many employees and business owners, this combination of circumstances cries out for a way to better manage contracts to reduce risk, centralize information and generally make a difficult, disjointed process more coherent.

So we see the interest in choosing a contract management solution, and interest in benefits. And of course, interest in Contract Assistant naturally follows that. We see a lot of interest in our free 30-day trial as well as our free 30-minute demo of the product as well.

Considering the list of risks associated with no or poor contract management, is it any wonder why readers are exploring the benefits, best practices, and case studies?

For more information about document retention policies, see this prior post. And here is a quick case study of how Texas A&M-Corpus Christi solved their contract management issues with Contract Assistant.

Stopping overpayment with contract management software

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stop-overpaying-contractsOne of the biggest advantages of contract management software is the ability to uncover overpayments. Even on a small scale, a small monthly overpayment can add up to a significant amount. For mid-size or large enterprises, duplicated services and overpayments can be downright disastrous.

Overpayment is remarkably easy to do. In a post on the Apex Expert Blog, Jim Arnold wrote about tracking down the scourge of overpayments in the context of ERP systems. He cited a couple of excellent examples in his blog of overpayments.

In one example, an automotive company ended up paying $421,000 more on a vendor contract because someone misplaced a decimal on the invoice. In another example, a large manufacturer contracted to pay 75 cents per cubic foot for gases, but on the invoice that was
changed to $75 per cubic foot. It got paid because the calculation made sense.

That’s how easy it is to overpay. When you have invoice payments being made but not recorded against an easy-to-view record of a contract, these kinds of mistakes are possible – even likely.

Consider the upside to catching these kinds of oversights. You could save your enterprise or branch a lot of money – helping to boost net profits and reducing expenses. We know of one example of a small city that implemented contract management software and in the first six months discovered $70,000 in overpayments on expired contracts — and an additional $200,000 in the next fiscal year.

Any version of Contract Assistant, for example, allows you to input key information on contract records, including payments made and details on contract rates and payment conditions. Even if you don’t catch something minor, you can set alerts to remind you when to check invoices to ensure that billings match agreed prices. Those are just two very quick examples of how contract management can help.

Don’t forget the reporting function too. If you are recording and sharing payment information within internal department groups, you have more “eyes” on the subject matter, and therefore more help in catching something irregular.

In any case, the real risk is letting contracts get signed, filed and forgotten by one department, then letting another handle the invoices with little to no information on the contract conditions. It’s just too easy for mistakes to be made at some point in the process. Giving your company the ability to record payments, review key deliverables and invoice information – pulling these things out into the daylight – makes it less likely to let overpayments go unnoticed.

Three proactive ways to use contract management to save your company money

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For many who use contract management software, the benefits become quickly apparent. For those who don’t, however, it may be a little more difficult to picture. After all, “contract management” sounds like a way to file and store contracts rather than actively manage them.

Here are three proactive ways of using contract management software that underscore just how useful and even profitable contact management software can be:

Consolidate Duplicative Services

It’s not rare for a company to implement a contract management software system and then discover they are paying several vendors for the same or similar service. To stop that bleed of financial resources, look for an overlap of contracts you can consolidate.

A best practice to identify these opportunities is to categorize and tag contracts with customizable user-defined fields. Then, search and report on a specific category and begin to assess any patterns or trends of unnecessary coverage, overpayment, etc.

Example: Maybe you opted to purchase extended warranty coverage for new computer equipment your organization purchased earlier in the year. However, the contract you signed with an external IT services provider already encompasses ongoing service and support of the same equipment. Which contract offers more services for a lower cost?

Renegotiate Current Contracts & Agreements

If you’ve input critical dates into your system, a quick search will bring up the list of current contracts that need to be renewed—and therefore renegotiated—in the coming period. And if you are diligent in keeping track of related notes or events pertaining to each contract, you’ll benefit by building your case over time and reduce any last-minute scrambling for supporting information.

Perhaps you can reduce your cash outlay by negotiating a reduced subscription pricing plan or monthly fee schedule. Or, even maintain the current pricing structure, but enhance the arrangement by picking up an added service or benefit at no additional cost.

Example: Think about your personal car insurance rates. At times of policy renewal, many insurance companies are open to renegotiating rates with profitable, long-time customers, especially when presented with quotes from competitor insurers! And if a price reduction isn’t feasible, maybe the addition of complimentary roadside assistance will suffice.

Dates to Beware

And while on the topic of highlighting critical dates in your system, pay extra attention to note any re-enroll or renewal dates that automatically take effect. You want to maintain the flexibility to proactively decide whether to continue your contractual obligations or avoid being trapped with a vendor you no longer want to engage with.

Your contract management system should support reminder alerts to keep you informed of these and other important dates that can have far-reaching implications for your business. Just one miss of a brief period to opt out of an automatic contract renewal can be frustratingly expensive over months or even years.

Example: Mobile phone service providers are notorious for exploiting this tactic. Surely you know someone who didn’t take action after waiting months or more for their service contract to expire, only to be looped back in for another two years. Ask them about the personal ramifications of that mistake and then amplify it to a magnitude relative to the scale of your business. Ouch.