Whether they are executed properly or not, all contracts are fundamentally the cornerstone of any business’s various relationships, including those with clients, supplier, and vendors. Even though this is the case, a lot of business owners don’t realize that poorly executed contracts can compound their risk, particularly if they do not follow through on a contract’s terms or fail to follow legal provisions as set in the contracts they create and sign. Having mismanaged contracts is a serious risk, and can cause confusion and mistrust with the other party, within an organization itself, or even within a court of law. With that in mind, here are three ways that companies often mismanage contracts, and what they can do to stop this from happening.
Always legally review contracts before signing
Businesses, especially newer ones, often make the mistake of trying to get a deal by any means necessary. This might make sense for a sales person, who primarily earns their living by making a commission on a percentage of the contract value sold, but it can hurt a business in the long term if it the contract gets stripped of key legal clauses and other provisions. This is one of the disadvantages of allowing sales agreements to be incorporated into contracts, as the terms and conditions of these agreements may not actually reflect what needs to be in the contract.
To prevent this from happening, early-stage business in particularly need to make sure that their sales people are not altering contracts to get a sale. At the least, if they do need to alter them to get a sale, you need to make sure that this process is legally reviewed by your legal counsel or a legal professional so that you do not get your company into hot water with a contract that does not legally protect you in the ways you want it to or prove to be beneficial to your business in the long run.
Failing to use contract lifecycle management within a contract management system
It is extremely important that all business owners, especially those who sign a wide variety of contracts to govern their different client and business relationships, understand the process of contract lifecycle management. Simply put, contract lifecycle management allows businesses to systemize, organize, and analyze all aspects of the contract creation, negotiation, fulfillment, and renegotiation process. Using this process, businesses can make sure that their contracts are working for them and that their contracts are working as intended and are improved for future use.
The best way to manage the contract lifecycle management process is using a contract management software to organize the whole process. While it may seem like an expensive undertaking to use a contract management system, the truth is that they will help you to reduce inefficiency in your contract lifecycle management and create a more organized system of contract automation, including sending out payments, collecting payments, drafting initial contracts, and ensuring that contracts are legally reviewed when alterations are requested. Using this process along with software can automate ever
Lacking digital records
Speaking of contract management systems, one way that businesses often fail to manage their contracts properly is by losing them entirely. A lost contract can be a huge issue when it comes to lawsuits, and it is estimated that anywhere from 36 percent to 54 percent of small businesses get sued per year. Without a backup of your contract, it can be very difficult to prove to the court that a contract breach has occurred, so it is important to back these up. The risk of this increases when contracts are resigned and original contracts are discarded, either lost in a file cabinet or an email folder hidden away.
A lack of digital records for contracts can also be an issue when critical documents need to be included. This can be anything from a service agreement for a contract to an assessment of financial disclosures for the sale of a business. Without these supplemental documents, it can be hard to get a contract created, let alone negotiation and signed. Having a checklist that helps you go through all of the steps, including backing up your contracts and critical files, can be helpful in maintaining your contracts and making sure they are continually compiled with.
Mismanaging your contracts can cost you a lot of time and money, particularly if a contract is not working for you or is not being implemented in the way you want it to. Always legally review contracts before signing, even if you initiated their creation, and make sure to use the contract lifecycle management process aided by a contract management system to organize everything. Furthermore, you want to make sure you have digital backups of all of your records in case they need to be referred to at a future date.