An activity that every company has to do is managing contracts! Concerning whether business partners, suppliers, employees, or even your office rent. However, not every company performs proper management of such documents, and then problems arise.
Neglecting stages or not complying with them adequately can generate financial losses, fines and legal proceedings. Contracts have life cycle, and due to that, they have to be monitored and revised often, or occasionally, adjusted or closed.
We have prepared this article for you, that is willing to understand a little bit more about this topic that seems to be simple, but is far more complex than one can imagine.
Contract life cycle
Contract is every document with legal value in which requesting party and supplier obligations and rights are agreed within a business transaction. Therefore, the contract has a life cycle.
- • Negotiation or pre-contracting: it is the stage that relevant parties debate and reach an agreement on what will be integral part of the document. As such previous conversation reaches a consensus, the contract is drafted.
- • Contracting: it is when the contract is approved and executed. From then on, it is effective.
- Performance: in this stage, contract provisions are complied with, according to each party rights and obligations. Revisions and addenda to the document might be required.
- Closure: when contracts end, it is time to review them to check whether there is any non-complied obligation or duty. In case there are pending issues, they have to be renegotiated and complied with; otherwise, the contract closure can be performed.
Why, then, perform contract management?
Every contract stage abovementioned need to be followed, so that no problem happens, demanding close attention daily.
As contract management is performed, it is possible to anticipate and minimize possible business risks, preventing losses, for instance, through clause or term renegotiation before penalties are enforced.
What is more, it enables that the company becomes properly organized concerning finance, merchandise delivery/reception terms; decreases financial loss chance, and it can even enable profitability increase; reduces legal action filing, fostering further legal security and support to the business; and a healthier and more efficient organizational environment can be developed, as it enables work time saving and provides better relation between supplier and contracting party.
How can contract management be optimized?
So that the details of what is happening are controlled, a broad overview is required. And the simplest way to do it is concentrating information in a single place, enabling each contract stage viewing, its pending issues, terms and complied obligation and duty percentage rate.
ContractPlus, for instance, is a SAP Business One native contract management module. It enables following each stage in details, controlling the next pending issues, adding contractual reviews and addenda, and also performing partial or total rescissions concerning customers and suppliers.
If you want more tips on how to optimize your or your customers´ contract management, talk to us!