Contract management basically involves minimizing risks by ensuring that legally binding agreements are properly created, implemented, and evaluated. It also entails ensuring that the contract documents are stored in an organized manner for future reference. Contract management is a responsibility that mainly falls on the person who drafts it. The steps one integrates into drafting it, and the documentation of a contract are what determines if it will effectively be managed or not. To minimize the risks that may be associated with a contract, the management process needs to be observed keenly.
Let us take a look at some effective ways of managing contracts properly.
1. Utilize Digital Solutions
Before we highlight anything else, we need to set one thing clear. A contract is only effective when executed and followed through to the letter. This means that when it is created, negotiated, and signed by the involved parties, there is a need to ensure that all dealings covered by the document occur as agreed.
Since the contractual processes often involve a few complexities, this brings in the need to utilize contract management software. The best contract management software for small businesses goes a long way ensuring the entire process goes smoothly from creation to negotiation and referencing. Especially if your business deals with quite a few different types of contracts, it pays to have a systematic way of creating, storing and retrieving them conveniently for reference from any part of the globe. This helps save time, energy, and money in the long run. It also doubles up as a form of accountability since you can keep track of whether your vendors, clients, employees or other entities are delivering their end of the bargain. Utilizing contract management software can help:
- Reduce stress
- Maximize sales
- Improve audit performance
- Enhance employee performance
- Streamline many other business processes
2. Always Run a Background Check
Contracts are formed by two people or more. There are many types of contracts in the world of business. The main distinguishing factor is the details of the document. The drafting documentation and closing all follow the same procedure. That being said, regardless of the type of contract you are signing, always run a background check on the other party(s) you are entering into a contractual relationship with.
The first thing is usually to make sure they are legally allowed to enter into any form of contract. Find out whether there are other existing commitments. If there are any, review them and determine the impact they will have on the agreement you are making. The bottom line is – do not sign a contract blindly without taking into account factors about the other party that could bring issues later on.
3. Identify Objectives and Goals and Define the Risks of the Contract
As earlier stated, effective contract management begins right from the drafting. Regardless of how you draft and document the contract, you need to think about the objectives and goals you aim at achieving from it. Goals are what will guide the drafting documentation and evaluation of the contract in the first place. Coming up with a contract that will satisfy the needs of both parties begins by having well-defined goals and objectives. Additionally, you need to define and understand the risk that comes with the signing of the contract. Understanding the stakeholders’ risk appetite is crucial in helping minimize risks in the lifecycle of the contract.
4. Drafting the Contract
Here, it is important to gather all the information required. Make sure that the standards required by your organization are maintained. For instance, legal and regulatory requirements should be adhered to. One thing to be keen about when drafting any contract is avoiding ambiguity. Any interpretation of the contract that is opposite of what you may have intended to mean may result in losses. Preferably, utilize the services of an experienced business attorney during the drafting process to avoid ambiguity.
5. Contract Negotiations
After the drafting, get the stakeholders together so you can go through the contract and decide what aspects of the same need editing. The process takes into consideration what each party expects from the contract, considering any amendments needed. Make sure that the negotiations are done with transparency. You can call for another meeting before the finalizing and execution of the contract to make sure the agreed changes have been updated in the documentation. Drafting a contract that each party is comfortable with will help cultivate a long-term and collaborative relationship.
6. Contract Execution
After the changes (if any) have been made in the contract, the stakeholders can then commence the execution of the contract based on the specifications that have been mentioned therein. This is where the signing is done. Make sure to re-read the contract before having your signature on it.
If your contract is going to serve its purpose, then proper management is crucial. Otherwise, all the time, effort, and money you spent creating it would all go to waste. Remember to keep it formal, utilize the appropriate professionals, and have it stored digitally to enhance convenience. All the same, the above few tips will come in handy.