In simple terms, contract management is the process of managing contracts an organisation makes with its suppliers, customers and trading partners.
If something goes awry during the course of the agreement, the contract will become pivotal in ensuring both sides get what was agreed at the start
Effective contract management involves managing contract creation, ensuring compliance with the terms and conditions laid out in the contract, as well as agreeing on, updating and documenting any changes or amendments to the contract during its lifecycle.
A successful contract management process will ultimately create strong, profitable relationships with trading partners. On the other hand, a poorly managed process can lead to a company losing out financially – unclear goals, expectations or technicalities can all be exploited and expose an organisation to additional expenditures, revenue leakage and huge financial risks.
The sheer volume of contracts a B2B organisation typically deals with only serves to exacerbate these risks – making contract management not only business-critical, but also a time-consuming process.
The Problems of Poor Contract Management
According to figures cited by Villanova University, poor contract management practices can cost businesses the equivalent of 9% of their total income each year. For most organisations, contract management inefficiencies stem from lacking the right tools, processes and a centralised contract repository.
The fact is that many organisations still rely on outdated tools like email and spreadsheets to manage their contracts – solutions that inherently limit access, visibility and security, which are all essential for effective contract management. According to one study, 71% of businesses can’t even find at least one-tenth of their existing contracts – a frightening figure, considering the vast majority of businesses have 90% or more of their annual revenues represented in contracts with suppliers and vendors, according to McKinsey.
Such disorganisation and an overdependence on spreadsheets can lead to huge problems. When contract data lives on different computers, or exists in numerous versions, that data becomes unreliable. Monitoring contracts is also hindered – even when spreadsheets are kept up to date, they are not always accessible to everyone who needs them, which can result in opportunities and renewal dates being missed.
Digitising Contract Management
The solution to all these problems is to digitise contract management. However, despite the fact that powerful and affordable contract management software solutions are available today, very few companies are actually taking advantage of them.
According to a recent survey by Bain & Company, only 16% of a sample of c1,700 executives expressed that their organisations had the right contract management solutions in place to track the performance of their customer agreements or that they consistently audit trading partners to ensure contract compliance.
(Image source: bain.com)
Consequently, says Bain, B2B companies are leaking huge sums of money. All too often, after sales teams and the legal department have agonised over terms, conditions and approvals and drawn up contractual obligations, “the contract goes into an electronic drawer where it cannot be easily accessed, analysed or tracked. The contract does not get codified for standard variables such as volume-triggered rebates or payment terms.”
By contrast, optimising contract management provides at least 100 basis points of additional revenue and profit, Bain finds. It recommends a smart contract management system that creates a single source of truth for all contracts and contract data – with easy access for relevant parties – along with detailed templates for new contracts, as well as active dashboards that support compliance and monitor the health of contracts and the effectiveness of renewals over time.
(Image source: bain.com)
Optimising Contract Management with Rebate Management Software
In order to improve contract performance and prevent revenue leakage, organisations must establish business processes for optimising contract management, utilising the appropriate digital tools.
One of the most effective technologies in this regard is rebate management software. Rebate management software completely digitises and stores all contracts in a centralised, cloud-based repository. This means that all stakeholders – including sales, finance, compliance and legal departments – can easily search for and review contracts, completely eliminating spreadsheet and email reliance.
From contract creation through to execution and analysis, rebate management software serves as a comprehensive contract management system, capturing all details throughout negotiations, as well as any changes that are made once the contract is live, while providing a full audit trail of all communications between buyers and suppliers. Such systems also enable multiple templates to be created in line with legal and commercial frameworks. These agreements can then be digitally signed – ensuring they are legally binding – and are stored centrally so they are easily accessible by all relevant parties, both internal and external.
Of course, rebate management software also manages complex rebate agreements, where contract terms and conditions often include qualification criteria and tiered pricing structures based on values, volumes, percentages, growth and other factors. Any type of incentive can be negotiated using rebate management software, with all sales and purchases automatically tracked and calculated in real-time against those agreements throughout the lifecycle of the contract.
Purpose-built systems also provide alerts when contracts are reaching expiration dates or approaching the time for renewal, allowing organisations to review the data using intuitive dashboards and reporting functionality and decide whether to renegotiate, continue or cancel the agreement.
Want to learn more about how rebate management software can help you digitise and optimise contract management? Talk to our experts at e-bate today for more information or to request a demo of our intelligent rebate management solution.