Efficient contract management = efficient business management.
A well-organized contract management team ensures all contractual risks are minimized, costs are controlled, and business is saved from unnecessary penalties while ensuring compliance with regulations.
It also builds strong relationships with internal and external stakeholders and infuses continuity into businesses.
In today’s world, well-managed contracts also provide strategic insights that help businesses make important business decisions. This then turns into a competitive edge for such business houses. Efficient contract management can, therefore, turn into a business’s vital mechanism to achieve sustainable success in a dynamic business environment.
Contract management has always been a specialized zone, yet in today’s fast-evolving marketplace, they have become even more complicated. The reasons are many, including ever-changing regulatory requirements, complications brought about by globalization, break-neck technological advancements, and intricate business relationships.
These factors have led to the inclusion of intricate terms, performance metrics, and dispute resolution mechanisms, making efficient contract management a challenging but essential task for businesses to navigate effectively.
What are Contract Management Challenges?
Lack of visibility and control
The most significant challenge in contract management is probably the lack of visibility and control over the entire contract portfolio. This is because of the intricate legal language and technical specifications that make them difficult to understand and interpret.
The problem gets multiplied in the case of large organizations that have numerous and voluminous contracts that need to be managed simultaneously. Administrative overload is often the first fallout, followed by errors of commission and/or omission.
It is here that efficient data management becomes crucial, as handling and organizing vast amounts of contract data and documents can be both time-consuming and error-prone without proper tools and systems. Business growth further accentuates the problem by bringing in a growing number of contracts that strain resources and cause backlogs.
Inefficient workflow and communication
Inefficient workflow and communication fatally hamper effective contract management. This can be further hindered by geographical spread and differences in time zones. The negotiation phase, often protracted and contentious, especially in complex agreements, requires skilled negotiation tactics.
Furthermore, monitoring contract performance, including tracking milestones, deliverables, and performance metrics to ensure compliance, can be resource-intensive. Without contract management software or automation, manual processes can lead to inefficiencies, errors, and missed deadlines.
Compliance and regulatory issues
While it is understood that contracts must adhere to regulatory requirements and internal compliance standards, ensuring the same is often very challenging. Contract teams often grapple with ensuring adherence to the terms and conditions of every party of the contracts.
Further, staying in line with changing regulations is an ongoing challenge. Handling contract disputes or legal issues, which can be costly and time-consuming, is another aspect of compliance management.
For a number of large organizations, there is another challenge – that of integrating contract management systems with their other business processes and software. Integration is complicated and requires careful attention to regulatory and compliance considerations.
Risk mitigation and security concerns
Risk mitigation and security concerns are paramount in contract management. Identifying and mitigating risks within contracts, such as non-compliance or performance issues, can be daunting. Missing contract renewal or expiration dates can lead to costly disruptions or missed opportunities.
Furthermore, safeguarding sensitive contract information from data breaches or unauthorized access is a constant concern. Contract management processes should incorporate robust risk assessment and mitigation strategies while maintaining stringent security measures to protect sensitive data.
The impact of contract obstacles on businesses can be profound
Worse, it often extends beyond financial implications. A failure in contract compliance and regulatory issues can lead to substantial penalties and reputational damage. Remember the Volkswagen emissions scandal? The automaker failed to comply with emissions regulations and, when caught, faced massive fines. Its brand image took a severe beating.
In the same way, inefficient communication and workflow within contracts can result in costly delays. Boeing’s issues with its 787 Dreamliner supply chain, including bottlenecks in contract management, led to production setbacks and billion-dollar financial losses.
One of the biggest bane of modern-day technology is data security breaches. Now if such breaches take place because of poor contract management practices, organizations will be caught in legal battles, loss of trust, and heavy financial repercussions.
A glaring example is the Equifax data breach that exposed the sensitive information of millions of heavy individuals across the U.S.A, Canada, and the U.K. and brought severe repercussions for the company.
How do you overcome contract management challenges?
There are a few key steps an organization can take to improve contract management:
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- Implement a contract lifecycle management (CLM) software to reduce risks and increase efficiency
- Streamline communication channels to enhance collaboration, reduce information bottlenecks, and improve overall organizational efficiency.
- Conduct regular audits and compliance checks to ensure that your organization remains aligned with industry regulations, internal policies, and best practices, thereby minimizing risks and maintaining a strong reputation.
- Integrate data security measures to safeguard sensitive information, protect against data breaches, and ensure the confidentiality and integrity of critical data assets.
Addressing contract management challenges is vital for business growth and continuity.
At the baseline, it enhances efficiency and productivity and improves. It then goes ahead to build strong supplier and customer relationships.
Legal Support World has been providing contract management services to clients across the spectrum for more than sixteen years now. Should your business be facing the above-mentioned contract management challenges, get in touch with us to outsource the processes.
What lies ahead?
Contract management has entered the realm of the future through recent developments in technology –
- Artificial Intelligence and machine learning are bringing about the automation of repeated tasks.
- Blockchain is enabling smart contracts for self-execution
- Cloud-based solutions and platforms are heightening accessibility and scalability
- Data Analytics tools are offering insights hitherto considered impossible and onerous
- Chatbots are already answering base-level queries
In an ever-changing world, compliance management is gaining importance by the day. Collaborative contract negotiation is the need of the hour and will now happen on a large scale because of integrated business ecosystems and applications. Contract management is set to enter the next phase of efficiency and agility. It is set to respond to changing business landscapes more promptly.
