Every industry has to deal with a fair share of contracts and legal agreements. The terms “Contract” and “Challenge” might not be synonyms, but when it comes to contracts there will be challenges. All organizations face challenges when it comes to contract management, but some of these problems can be attributed to lack of resources or unresolved issues in monitoring contract lifecycle management.
For companies that have to sign and manage a large number of contracts, problems are likely to creep in. For example, in the manufacturing industry, companies involved in the manufacturing and construction need to enter into multiple contracts. These include goods contracts, vehicle contracts, labour contracts, technology contracts, etc. Addressing these contracts opens up opportunities for challenges to step in and disrupt the process.
To help your organization navigate the contract management process, we have examined five of the most common contract management challenges and ways to solve them.
Challenge #1 - Breach of contract, legal compliance issues
Companies are required by law to follow strict regulations and protocols to verify factors included in a contract. In general, trying to control these factors is very difficult. This is especially true for companies that operate in multiple countries. This is because the rules and regulations may be different in other countries.
Sarbanes-Oxley (SOX) is an example of the many regulatory compliances US companies have to deal with. Research shows that the time organizations spend on his SOX compliance has increased by up to 10% over the past few years. SOX is a law created in 2002 to protect investors from fraudulent accounting practices by companies. Another important regulatory compliance term that businesses must adhere to is the EU's General Data Protection Regulation (GDPR). This regulation is intended to protect personal data. This applies to all countries within the EU and to foreign companies doing business with companies registered in EU countries.
A contract manager is responsible for ensuring that all of these required compliance clauses are included in the contract. They must reflect terms consistent with the laws of the country or state to which the agreement applies. Additionally, you must ensure that employees and managers within your organization comply with these terms and conditions.
Our preferred solution for this is a contract management system. A contract management solution can ensure that these clauses are properly incorporated into draft contract documents. Most automated solutions come with features like contract templates and clause libraries to help you create contract documents faster and more efficiently. Additionally, a centralized contract archive can play a very beneficial role in terms of compliance and risk management.
Challenge#2 - Lack of contract standardization and centralization
One of the biggest challenges for companies with ad-hoc contracting processes is distributing contract clauses and contract templates throughout the organization. This is a good example of non-standard contract management. The legal department should review all written contracts verbatim to avoid exposing the company to legal issues.
Standardizing contract language provides several benefits, including cost efficiency and increased productivity. However, standardization has its drawbacks. It is important to note that standardization does not allow deviations from the original contract and prevents innovation in contract design.
By using contract management tools, businesses can spend less time drafting/reviewing contracts and more time on strategic initiatives. For standardization and centralization of contracts, we recommend leveraging the capabilities of cloud-based centralized contract storage to provide a single view of all contracts.
Challenge#3 - Contract process separate from other systems
Similar to the contract management issue above, manual contract management does not allow contract management actions in the context of a business user's day-to-day use of the software. A sales rep has to leave her CRM software to close a deal with a customer. Buyers need to finish the procure-to-pay system, etc. Such context switching has been shown to reduce protection.
The best contract management solutions allow your employees to perform contract management actions from within the software they already use and are familiar with.
Challenge #4 - Inefficient supply chain management
The supply chain is one of the most important part of any company. The relationship between company and supplier is defined by the contract between them. As supply chains grow in size globally, so does the need for better contract management between these supply chains. A major challenge that can arise is the volatility in the prices of the raw materials involved in manufacturing. This means that the cost of doing business can vary greatly depending on current conditions and factors beyond your control.
The solution recommended by seasoned experts for the above scenario is to have a well-written contractual agreement for your supply chain. These contracts must be managed continuously throughout their lifecycle. The contract drafting capabilities of our contract management solution enable you to create robust contracts for your company's supply chain and efficiently manage them throughout their lifecycle.
Challenge #5 - Management of expiration dates and renewal dates is complicated
Contracts can be a little tricky. Contract managers should be very vigilant about expiring or renewing contracts within their organization. Missing an expiration or renewal date can cause many problems. Such delays slow down the contract processing time. Companies may even lose some business because of this. What contract management tools do to address this solution is create automated notifications or alerts that are sent to the respective authority. These alerts act as advance warnings for interested parties to prepare for contract renewals or expiry. Automated workflows are available for these custom notifications in contract management solutions.
Challenge #6 - Substandard tools for contract lifecycle management
Last but not least, inefficient tools for contract lifecycle management are a major challenge for businesses. The truth is that most contract managers still manage contracts using traditional methods such as Excel spreadsheets, email, and paper. Many people don't know that purpose-built contract management solutions exist or don't know what to look for in a contract lifecycle management solution.
In a manual contract process, a contract manager or employee can use a contract template, fill out various fields in the template, and then email the completed document to the legal department for review. After these steps the document can be sent to the other party involved in the contract. The counterparty can make changes to the document and then email it back to the legal department. The legal department will email it back to the contract manager or employee.
This is a recipe for misunderstanding and inconsistent collaboration. If you repeatedly email multiple people, details can be overlooked or misrepresented. This increases the potential for inefficient negotiation steps and lack of visibility.
For companies that process more than 20 contracts per month, a contract management solution can be a business booster. Choosing a contract management solution can be a huge improvement for your growing business.
Automation is key to maximizing contract value
Due to the number of tasks in the contract management process, automation is required to set up the most efficient contract management functionality. As the name suggests automation would do all the work for you. This is where SpeedLegal can help you.
SpeedLegal’s Contract Management makes it easy to upload all your contracts to a unified platform that you can access from anywhere. By uploading, you can track all the benefits and value of your contract while anticipating possible risks. SpeedLegal helps automate contract processing by providing automatic notifications of upcoming milestones such as: The end of the contract term is automatically sent to all parties and also takes into account critical performance exceptions.
A powerful contract management tool is an important tool to support performance tracking as it allows you to track parties performance instantly.