12+ Best Tips in Contract Management for Small Businesses
WHAT IS CONTRACT MANAGEMENT?
Contract management is the management of contracts between employees, customers and other parties. It supports the preparation, negotiation and implementation of contracts. Two parties will make an agreement outlining their activities that they shall carry out with each other. For example, one party will promise to carry out their employment tasks specified and the other will pay them an agreed wage.
The whole contract management process is a business process, businesses are always finding ways to reduce their costs and increase profitability. Contract management is time consuming so finding new ways to make the process more efficient is beneficial.
If contracts are not conducted appropriately, it can create risk within the business and reduce the businesses performance. Many kinds of businesses need to give more attention to contract management, whether they are small businesses or large. Even if a company is small, the number of contracts may increase suddenly, and it is important to have systems ready for any growing number of contracts.
However, many businesses do not have contract management systems or employed individuals for the roles within it. With such systems, it can both decrease the risk of losses from the business and increase the value of the business.
Here is a little more information on what goes into contract management.
THE CONTRACT LIFECYCLE
All contracts have a lifecycle and there are 9 stages to this.
- Contract request – Identifying contracts with consideration to their purpose
- Authoring – Before management systems, contracts would have been written by hand. Now they can be efficiently created on digital systems.
- Negotiation – The other party will read the contract and negotiate any terms.
- Approval – The contract is approved by the appropriate people.
- Execution – The signing of contracts after which they become binding.
- Obligations management – Ensuring the contracts obligations are being carried out.
- Contract amendment – If there are any changes in the contract or the obligations, they should be amended.
- Audit and reporting – Contract audits look at the compliance of the contract and any problems.
- Renewal – The renewal process is made simpler by contract management systems. It ensures they are not overlooked.
There is a fairly long process to contracts and therefore an efficient contract management process is essential. It is especially beneficial for those who have small businesses and are striving for growth. Each part should be attended to and no element should be overlooked.
Here are some tips for effective contract management.
BEST TIPS IN CONTRACT MANAGEMENT FOR SMALL BUSINESSES
1. Adhere to a Plan
When beginning the processes of contract management within your business, you need to make sure there is a plan set for each contract. This plan could include the following three steps: creation, execution and maintenance.
With this structure, it will ensure that the process runs smoothly and that each contract will follow the same process. Maintenance would be the most important element; the plan must include continuous reviews. You could also plan goals for the business and record when you meet them along the line.
2. Make Effective Decisions
Consideration is needed for many points in the contract management process. It is needed throughout the first stages of contract creation when deciding if the individual can fulfill the obligations.
In addition, it is important to consider how the contract will operate over time and ensure that you have planned for any unexpected outcomes.
Ensuring that a company has thoroughly thought about the reasons for making a contract and whether the contract will run as expected is important to ensure that the company minimizes any foreseeable losses.
Moreover, considering what a company will do if a contract has any problems is equally as important. Planning for unexpected problems allows a company to be prepared and in turn, reduce losses.
3. Digital Contract Management System
With all businesses, even small ones, there are several contracts that will be made between different people. This means that a contract management system is vital even in the early stages of a businesses growth.
With a system in place you will not have to spend business money on employing individuals to file away all of the contract documentation and having to search for the correct data at a particular time. It will save a considerable amount of time to access and organize contracts when it is available on a digital software.
The competition of contracts will also be faster, the review and approval phases are beneficial and using electronic signatures is also a bonus.
Digital contract management systems also reduce paper and reduce the chance of the business losing important documents.
4. Conduct Regular Compliance Reviews
To ensure that your company is receiving all the benefits and terms that are set out in contracts, you need to conduct regular compliance reviews. The reviews will help manage the costs put into the contract and the risks.
These reviews can gather information that would be useful for the parties going forward and how to improve their relationship.
A focus on KPIs (Key Performance Indicators) is also important and meetings should be had with employees and other members of the business to ensure that they have met their performance goals. Within these meetings, you can also discuss any problems that the employee may have with their contractual obligations.
In addition, it is importance in the compliance stage of contract management to look for any unrecorded liabilities, overpayments or under-reported revenue.
5. Use Templates
To make sure the companies’ contracts are consistent and avoid the lack of important elements, using contract templates will be very useful for a small business starting up. Using templates will also allow you to save time and money in the legal departments.
The contract templates should be clear, simplified and appropriately structured. It should cover all basis of the contract to ensure that there are no loopholes in legal obligations. It should also be easily edited for varying contracts or different templates can cover each contracting area.
You need to ensure that these templates are reviewed when new changes are made to contract law or when there are changes within the contract that need to be updated.
6. Keep Up to Date with Expirations
Contracts come to an end and it is important to keep tabs on when this will be the case. Without knowledge of end dates and changing terms, it can interrupt the business. Most people do not bother to notice whether a contract has an end date, and this can lead to problems down the line.
A great way to keep on top of expirations is to record them before the contract starts. You could set up a system which flags to you that a contract has a certain period of time left, leaving enough time to make appropriate arrangements such as renegotiating a new contract.
7. Ensure You Update
Within the process of contract management, you need to make sure that contracts are updated. There are changing laws in all areas of contracts, whether that be with partners or employees.
If a contract is outdated, then it may not be entirely legally binding and may be limiting the legal rights of others. Updating contracts accordingly will help to build a greater relationship with partners and increase the trust within your small business.
A transparent and honest small business is one which will excel. It may be beneficial to take a course in business law to educate you on some of the most important elements to know in this area.
8. Focus on Communication
When managing contracts within a company, you want to make sure that you communicate effectively with all partnerships and contractual relationships.
Communication will ensure that parties are happy with the contractual relationship and ensure they feel comfortable enough asking questions which will further develop transparency.
Furthermore, if there are any problems within your contractual agreement, such as payment being late or tasks not being completed, this should be communicated in good time to maintain the professional and proactive nature of the relationship.
When drafting contracts or making claims on contracts, lawyers are needed. They will ensure that all grounds are covered when it comes to claims and contracts as they are experts in the legal field.
Without lawyers, you could be found to be in breach of the law if you do not carry out operations correctly, or you could have your rights breached. This is hugely important in the process of contract management and it should not be overlooked within your small business.
10. Be Flexible
Although a contract needs to be extremely specific and outline all areas of a contractual relationship, it is important to allow flexibility within a contract. Sometimes you will need to change terms for the other party, and sometimes it will be beneficial for the company to change terms.
This means that you should make provisions for the ability to change and adapt contracts as needed before the agreements are made. Showing that a company can be flexible for others is an attractive trait. This will increase the chances of creating new partnerships.
11. Information Available for Both Parties
When dealing with the contractual information, all obligations and terms should be available for both parties. This increases transparency and protects both of their rights. With the availability of online shared folders this has become much easier and simpler.
12. Have Plans for Cancellation
At times contracted agreements do not go to plan. For example, an employee may not be being co-operative or productive. This can be unforeseeable at the time of creation. In small businesses especially, employers need to cooperative with their employees and be a team.
A small business has to ensure that employments are affordable and their place in the team creates a profit. If the chosen employee does not work well with the business, then an efficient practice to find a new employee needs to be planned. Of course, this also applies for other kinds of relationships. For example, a business and their client or a business and a provider of goods.
13. Keep Information Secure
When creating contracts and dealing with contracts they need to be stored in safe places. Not only does this stop information from getting lost but it also keeps all information relating to the contract confidential.
This can be done by using safe storage and sharing systems. This also allows documents to be shared with others when required, instead of having to scan documents which can be time consuming.
ELEMENTS OF EFFICIENT CONTRACT MANAGEMENT
When contract management is effectively carried out, the business can expect to see a few things.
- None or limited contract disputes due to the regular review process, consistent updates and transparency of the business.
- Both parties satisfied with their end of the deal and are happy with their outcomes.
- There should be consistent cooperation with parties.
- The contract process should comply with all legal rules and regulations as lawyers have been involved in the process.
- There should be no confusion in the contract process due to consistency.
- All party’s information will remain confidential.
- The business will be known for its fantastic communication.
- There will be increased income for the business.
- The whole business management process will be faster and more efficient
- A decreased chance of losing files due to online storage.
Hopefully, these tips have given you some key points to add to your contract management process within your small business.
WHAT ARE THE RISKS WITH OVERLOOKING CONTRACT MANAGEMENT?
If you fail to prioritize contract management in your business, there can be some disastrous consequences. With a simple implementation of effective contract management these can be eliminated. Here are a few of the problems that occur without any consideration to proper contract management processes.
- Signing documents with sneaky terms – If you do not have a process of reviewing documents and reading each section thoroughly, you could be agreeing to something that you are unaware of. This is something that could be easily avoided if the process was done properly.
- You may miss deadlines – If you do not have an effective management system in place you may not meet deadlines that are needed with contractual relationships, this will negatively impact your relationships. You may also miss renewals and the potential to renegotiate contracts.
- Compliance problems – If a company does not conduct compliance reviews, there could be members of a business that are not carrying out their contractual obligations and wasting the companies time and money. There could be instances in compliance reviews where a company will decide to terminate contracts, and this would not be effectively managed.
- Underperformance – similarly to compliance, a company will have various goals and milestones. If these are not met, then it will have negative impacts.
- Breaches of contract – If contracts are not managed properly, parties could unknowingly breach contractual terms. Not only can a breach of contract incur legal costs, it will jeopardise the company’s reputation. If it is a small business start-up, it could stop it in its tracks.
It is clear that not having a good management system in place is detrimental.
BECOMING A CONTRACT MANAGER
Becoming a contract manager is not always as easy getting a degree in contract management. However, there are various courses that can provide you with the skills needed to progress into this area.
Key skills that would be relevant include:
- A degree in Business.
- A health and safety
- Knowledge in law/ a legal qualification – this is critical when managing contracts. Although you may have a legal team, some knowledge is always advantageous.
- Business management.
- Great interpersonal skills.
- Time management.
- Technical skills.
- Contract awareness.
- Be able to negotiate effectively.
- Risk management – contract terms and liability or the risk of new vendors, employees etc.
- The ability to resolve conflicts to avoid court action.
- Financial knowledge – this will be useful for understanding budgets and profitability.
There are also a few different types of areas in which you could work in for contract management. For example, if you wanted to work in construction, you could manage all the contracts of the construction team. There are courses specifically for construction professionals who wish to become a contract manager from The College of Contract Management.
The average salary for a contract manager is £50k per year, meaning It is a great career to get into. It is a rewarding job which provides individuals with the knowledge of the important parts of a business. Not only will it provide an individual with lots of commercial experience, it will present challenges on a daily basis with no day being the same.
Contract management is a big process which has a fundamental place in business. As relationships in the business world are primarily built off contracts, investing some time and money into this area is important and will serve your company well. Company’s big and small need to have effective systems in place.
You have read about the contract lifecycle, 12 tips for improving your contract management, the effects of efficient management and the risks of overlooking the process. Finally, you read how to become a contract manager and the various skills that would be useful for a career in this area.
Daisy Dart is a recent law graduate who now works full time as a content writer for The College of Contract Management. She loves to write on a variety of topics especially law, business and lifestyle. Daisy obtained her experience from her three years at University in which she wrote a 10,000 dissertation on a legal related topic
Success in the business world is not just about having a great business idea or an even better …
Too often, managers invest anywhere from tens of thousands to tens (or even hundreds) of millions of …