Three simple questions that predict your need for contract management

Lightbulb imageLet’s start with the following confession of sorts: contract management, at first glance, doesn’t seem a high priority to many businesses. Indeed, there are far more “sexier” areas of business productivity software that seem to get a lot of attention – like CRM or cloud storage.

Nonetheless, the people here at Blueridge Software Inc., makers of Contract Assistant, know just how important contract management can be to any company’s bottom line and business productivity.

As an example of that, here are three simple questions that can predict how urgent your company’s need for a contract management solution.

 

Question 1. How many active contracts are in place today?

It’s actually a simple question. A very small business owner may be able to quickly rattle off an answer after a moment’s pause. However, if your company has more than even a handful of employees, this can easily become harder to answer.

Companies that implement our Contract Assistant solutions are often amazed at how many contracts they actually have in place. This leads to other questions that, when answered, can help any company’s bottom line, such as:

  • — How many vendors are under contract for similar or the same services?
  • — How many contracts are in place per department?
  • — What are the trends in vendor contract numbers – have they been increasing or decreasing, and why?

 

You can easily see how questions like these can affect the bottom line when duplicate services are uncovered or when department budgets are directly affected by the growth of vendor contracts. That’s why it’s so important to have all contract data in a secure, searchable database. Once records are created for each contract, questions such as those above can be answered easily and quickly.

Question 2. How many contracts are up for renewal this year?

This is an important question because not knowing this means your business is simply not prepared. A contract end date is important for several reasons, but mainly because it signals a good time to review performance and look for opportunities to renegotiate terms based on that review.

Even a telecom contract end date should spark some curiosity: have other telecom vendors changed their service offerings since you signed with your current vendor? Are you really getting the best deal?

When it comes to more complex contracts with key suppliers or business partners, not being prepared for an end date means your business may find itself scrambling or doing a rushed review. That can lead to missing information – and potentially exposing your business to more costs than expected.

Users of Contract Assistant can set alarms/reminders of key end dates well ahead of those dates – giving your business time to review and evaluate.

Creating the contract record can help you be more prepared in other ways too. Some vendor contracts may have “auto-renewal” clauses. These usually call for automatic renewal of a contract unless there is some notification received within a certain time frame – usually weeks before the actual end date. Setting an alert well ahead of that auto-renewal “window” let’s you be prepared to either allow for auto-renewal or renegotiate.

Setting alerts around end dates, renewal dates, or even mid-term contract dates ensures you business is prepared when it comes time to renegotiate or discuss terms.

Question 3: How many contracts are over budget?

If no manager in your business can answer this question clearly about contracts they are responsible for, your company is exposing itself to a lot of financial risk.

Remember, it’s not important that someone personally know the entire payment history on every contract. What’s important is that there is a record of contract terms, contract performance, and financial summary data available for anyone (like chief financial officers or staff accountants) to review.

A contract management solution provides an extra layer of protection to ensure overpayment or cost overruns don’t go unnoticed. An accounts payable department, for instance, may not be able to determine when an increase in a vendor’s invoice reflects a contracted price or not. Indeed, unless someone has access to check contracted prices or conditions, there’s no way for them to know.

Having a contract management solution means contract records are easily accessible and contract terms relating to costs can be reviewed.

Summing up: How urgent is your need?

If your business doesn’t have an answer for these three questions, there’s probably an urgent need for a contact management solution. If you can answer one out of three, that’s a good start, but you still have important holes in your cost management. Being able to answer questions 1 and 2 means your organization places contract management at a higher priority than many businesses.

However, that just demonstrates how much faster your business can benefit from a contract management solution.

In the end, every company should have a firm grip on all three questions. It’s about being proactive when it comes to costs and contracts – something every enterprise needs these days.

[Image courtesy of Keerati/ FreeDigitalPhotos.net.]

[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and ]

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