Appropriately managing vendor contracts is critical to building successful partnerships. Vendor contracts define business relationships, set expectations, and spell out the consequences of unmet obligations. When businesses effectively negotiate and manage their vendor contracts, they’re better able to mitigate risk, minimize costs, enhance efficiency, and sharpen their competitive edge. This article will explore fundamental aspects of vendor contract management, its importance in today’s business landscape, and how contract management software can make the process more effective.
The management of vendor contracts affects businesses on many different levels. Below are some of the important ways effective contract management practices benefit businesses and vendors alike.
When businesses dial in their vendor contract management strategy, they are better able to build strong partnerships with their vendors. Miscommunication and misunderstandings about deliverables, due dates, quality standards, pricing, and other variables can quickly create friction and undermine these relationships. A strategy that standardizes contract language and terms with preapproved language and templates, helps businesses build dependable relationships with trusted partners, which, in turn, supports their ability to provide excellent service to their customers.
When contract language is standardized and contract data is well organized and easily accessible, businesses reduce risk in several ways.
Contract management begins with negotiation and the drafting of documents. A highly effective approach gives businesses greater control over what’s in their vendor contracts. This includes creating standardized language as well as visibility into expiration and renewal dates, the performance of previously executed contracts, total contract costs, and other insights that support well informed negotiations.
Effective contract lifecycle management makes contract data easily accessible to those who need it through dashboard analytics and custom reports. With visibility into contract costs and performance, decision-makers can develop a clearer picture of how specific vendor services fit into the budget and, as a result, more effectively negotiate prices. A great CLM software can help identify opportunities for volume and partner discounts, free add-ons, and other cost-cutting terms.
While vendors often provide their own service-level agreements (SLAs), these are best treated as a foundation for negotiation. Effective contract management includes examination of SLA terms to ensure you’re on the same page of the vendor about the level of service you can expect from them and the metrics that will determine whether these expectations have been met. If it’s not included, negotiators can push for an indemnification clause that ensures the vendor will compensate your business for losses it incurs as a result of any failure on their part to deliver the services outlined.
In the past, contract management was necessarily a labor-intensive job that required the close attention of high-level employees or external counsel. However, even businesses that dedicated these costly human resources to contract management often struggled to create a process that could effectively meet the objectives described above. In the digital age, software has made truly effective contract management more and more attainable as technology evolves.
Companies that continue to rely on manual processes or outdated software face significant obstacles to optimizing their contract management process. As contracts are amended, updated, approved, and moved through the lifecycle, maintaining version control can be challenging. Contracts may be stored in various locations, either physically or digitally, making it extremely difficult to keep tabs on key dates and deliverables. When it’s time to create new vendor contracts, procurement may cut and paste from older documents without knowledge of other versions of or updates to those documents.
This can create a host of problems with vendor management. Multiple departments could create contracts with the same vendor, missing opportunities for bulk discounts and creating inconsistency in dealings with that vendor. Contracts could be made without awareness of critical terms that should be included or understanding of the latest language updates in similar contracts. Without clear visibility into key dates and obligations, businesses risk falling out of compliance with their contracts or failing to claim available remedies for their vendors’ noncompliance.
The latest contract management software uses centralized contract repositories, sophisticated organizational tools, and AI to create consistency, reliability, and efficiency in contract lifecycle management. It allows businesses to securely store data in the cloud and provide permission-based access to all key employees. AI features can enable advanced search capabilities that allow quick and easy visibility into the information users need when they need it. Below are some of the many important ways these solutions can improve vendor management.
A secure, cloud-based contract repository can ensure everyone on your team can be confident they’re working with the latest version of a contract and using up-to-date standardized language when drafting new agreements. Contract audits can reveal all changes that have been made to a document, when, and by whom. If employees need specific contract information, permission-based access can allow them to find it independently—without needing to go through the legal or contract management team. A single source of intelligence for all your company’s contracts keeps everyone on the same page, making contract management more efficient and cohesive.
Storing and tracking contracts in a central location creates a wealth of opportunities for gaining insights. Combined with the power of AI and machine learning, a central repository allows businesses to conduct analytics that fit their individual goals and KPIs. Procurement leaders can gain unprecedented visibility into contract performance and opportunities to enhance efficiency, quality, and profitability.
With analytics in place, businesses that use modern contract management software can automate the delivery of reports and notifications to key employees. This can have numerous applications and benefits for vendor management. For example,
Permission-based access to contracts throughout the lifecycle, beginning with drafting and negotiation, streamlines collaboration. With simplified version control and audit trails, it becomes easy to stay on top of the latest changes to a document and next steps in the process. Automatic alerts can help ensure everyone knows when they need to act, helping to speed authorizations and approvals and keep operations humming along.
Some, but not all, modern contract management software allows for easy integration with other software applications. Choosing a contract management system that plays well with the other technology your business uses can amplify its benefits. It can facilitate cross-departmental collaboration by bringing together data from CRM, ERP, accounting, and other applications. When data from diverse sources can be easily imported into the contract management software, procurement professionals are better equipped to make strategic decisions that support overall business objectives and profitability.
Contracts 365 is cloud-based contract management software that’s designed specifically for businesses that rely on Microsoft 365. Using the Microsoft cloud architecture as a platform, Contracts 365 leverages a business’ existing Microsoft 365 tenant for the central repository, providing secure data storage while allowing employees convenient, permission-based access with the same login credentials they use every day. As a result, organizations can enjoy unsurpassed security while retaining complete control of their documents and data.
Contracts 365 allows employees to interact with the contract management repository via the Microsoft applications they already use, such as Word, Outlook, Excel, Dynamics 365, SharePoint, and Teams as well as additional applications such as Salesforce. The system can import data from and provide seamless access to that data to employees in diverse departments like marketing, sales, procurement, accounting, and human resources. The result is better informed contract creation and greater control over and visibility into contracts throughout the lifecycle.
Contracts 365 also integrates seamlessly with leading e-signature platforms, making it easy to keep the contracting process moving. When they integrate their contract management software with solutions like Adobe and DocuSign, users can maintain visibility as documents pass between parties. Documents can be signed from any device without the need for additional logins or software.
Appropriately managing vendor contracts is essential to support uninterrupted operations, maximize efficiency, and minimize costs and risk. Modern contract management software that seamlessly integrates with your existing business software is a game changer. With it, you can negotiate better terms in vendor contracts and ensure they’re executed and enforced properly, boosting your company’s bottom line and supporting ongoing success. To learn more, request a demo or browse Contract 365’s library of free resources.