Contracts are an inevitable component when fostering healthy business relationships. As entrepreneurs seek growth opportunities for their companies, they may need to enter into binding contracts with other collaborators. However, how a company manages its contracts has a significant impact on the overall smooth-running of business processes.
Handling many contracts at a go can be overwhelming and is one of the reasons why contract management can be unsuccessful. It is for this reason that companies should invest in contract management software.
Contract management software promotes accountability while providing insight into the contract processes. A company can manage documentation, finances, and stay ahead of renewal dates, which all work towards increasing productivity. Additionally, it also helps businesses reduce risks associated with poor contract management.
In this article, we will look at the various issues that are likely to arise as a result of poor contract management.
Allow me to indulge you deeper.
1. Missed deadlines
Contracts are not the only thing that a company focuses on. Organizations handle various business processes that are crucial to the overall success of the brand.
During an ongoing contractual project, it is not uncommon for parties to fail to meet deadlines. For companies that are manually tracking dates, missed project timelines may become a reality. In cases where these milestones activate certain conditions or processes, delays in the project may inconvenience stakeholders and have huge financial repercussions.
Proper contract management allows businesses to automate contract renewals. By setting up date reminders, organizations stay on top of their contracts, minimizing the risk of missed deadlines that are vital to ensure the project runs smoothly.
2. Unauthorized access to information
Contracts are legally binding and only meant for the viewership of the parties involved. The reason being, contracts contain sensitive information like contact information, pricing, account numbers, and many more. Leaving this information for anyone to access is risky as unscrupulous people might use this information to their benefit, at the expense of the companies.
It is for this reason that a company should invest in contract management software.
Contract management software offers access control features that allow parties to include special permissions for authorized persons. For instance, the software allows a company to give viewing-only access to some parties, while others get editorial permissions. Such multi-layered permission features address the needs of the organizations effectively, keeping sensitive data safe.
3. Ineffective business reporting
In a contractual agreement, the importance of business reporting cannot be over-estimated. Reporting is a vital aspect of the contract management lifecycle as it allows companies to oversee the overall project. It also analyzes its performance, while identifying areas of weakness and growth opportunities.
Poor contract management inhibits the provision of critical project analysis. That way, the relevant stakeholders fail to report workflows effectively. As a result, there might be an oversight on information about finances and the overall progress of the project.
For these reasons, executives need to employ strategies that help with effective business reporting. Contract management software promotes transparency in workflows as it generates reports that alert project managers on impending project pitfalls before they turn out to be disastrous. Besides, it also allows the project’s legal team to access the overall risk of an agreement and pinpoint problematic areas.
4. Compliance problems
Complying with government and other regulations is of paramount importance. It is a vital aspect of running any successful contract-based project.
In this case, compliance regulations are put in place to ensure businesses handle projects fairly and as they are supposed to be handled. Poor contract management is risky as it exposes organizations to non-compliance, which could mean suspending trading processes and paying huge fines. In the worst-case scenario, it ruins the reputation and credibility of companies which they may find hard to recover from.
Proper contract management practices aided with the appropriate software helps a company audit existing contract clauses to ensure they comply with regulations put in place. These clauses touch on crucial elements such as privacy, confidentiality, and arbitration. The contract management software will conduct regular compliance checks and notify the relevant parties when any of the clauses are not in line with the set regulations.
5. Delayed approval of work processes
To ensure the success of a project, organizations need to approve workflows in time. Without efficient approval, a project may stall time-critical processes.
Project supervisors will not always be on-site to handle business. Sometimes, they may be unavailable and need to work remotely. Without a proper contract management system, approval bottlenecks will disrupt workflow, which can cause frustrations and a possible delay in reaching deadlines.
Contract management software minimizes the likelihood of suffering such challenges. It automates contract approval, sending alerts to project managers reminding them to carry out their duties. In case of an unanswered e-mail, the company can program the software in such a way that it escalates the approval request to other relevant people. With e-signatures becoming more popular, you are assured of efficient workflows even in the absence of one of the authorizing officers.
6. Breach of contract
The probability of a breach of contract due to poor contract management is high. Such breaches are a result of poor communication, misappropriation of funds, and delayed milestones.
When getting into a contract, the involved persons must understand the facts stated in the agreement and focus on the core business. When either party does not live up to the expectations due to their incapability to manage a project as required, they are in breach of the contract. Poor scope of work, time overruns, non-compliance, and stakeholder disputes are practices that may lead to not only a breach but a termination of the contract.
The consequences of the above vary depending on the seriousness of the breach. However, the party in breach can expect fines and a reduction of the prices. They may also be required to compensate for any damages and pay for delays, outcomes that are avoidable if only the at-fault party practiced proper contract management.