The consequences of poor contract management
Contracts can be a headache. They’re the backbone of any business relationship, but when contracts are poorly managed, the ripple effect can be significant. Things can go south either before or after contract signing if you’re not careful. Poor contract management can lead to various consequences that can cost your organisation money, time, and reputation. Let’s explore these consequences of poor contract management and how to avoid them.
1. Missed key dates and milestones
One of the most common consequences of poor contract management is overlooked key deadlines and milestones. Contracts often come with a series of time-sensitive deliverables. If you’re not keeping a close eye on these, it’s easy for them to slip through the cracks.
Without a solid system in place to track key dates, you could miss a critical deliverable and face penalties – whether it’s a fine or the termination of a contract. Worse still, missing deadlines can lead to project delays, which can throw off many timelines and create a domino effect across your business.
Automated workflows and alerts with task escalation and audit trails can drastically minimise these issues. When everyone has an easy way to retain task awareness, it’s less likely that anything will slip through the cracks. You can build workflows according to your unique needs quickly and concisely with contract management software.
2. Increased legal and financial risk
Poorly managed contracts are ripe for legal and financial trouble. For instance, let’s say there’s a clause in your contract that requires you to notify the other party of any changes within a certain timeframe. If you’re not keeping up with those clauses and miss this allotted window, you could be held liable for damages. Once litigation gets involved, the costs start piling up. Litigation is expensive and time-consuming, and no one wants to be stuck in court proceedings to mitigate something that could have been avoided with contract oversight.
Luckily, you have several tools at your disposal. A risk assessment matrix allows you to map risk and risk exposure to proactively monitor potential problems with a contract. Additionally, workflow reminders and ad-hoc reports allow your team to keep tasks associated with contracts and changes at the top of their minds.
3. Compliance issues
Poor contract management can result in non-compliance which can carry serious consequences for government regulations, industry standards or internal compliance. Not only can you be exposed to fines and penalties, but non-compliance can also carry long-term effects on your business operations.
Say a government contract includes specific reporting requirements. If you fail to submit the required reports on time, you could be in breach of a contract and violation of compliance. This could not only jeopardise your current deal but could also blacklist your company from future government contracts.
With contract management software, compliance checklists could be seamlessly confirmed and completed as required metadata fields. Easy searching and reporting can make it easy to submit the correct reports and documentation of the latest preferred version. Task alerts can remind your team to submit the required deliverables to remain in compliance.
The lack of organisation that comes with poor contract management also leads to wasted time and resources. When contracts aren’t easily accessible, terms aren’t clear, or there’s no central place to store updates and amendments, your team ends up wasting valuable time trying to find the right information or fix problems that could have been avoided.
4. Wasted time and resources
Each time you have to dig through email threads, spreadsheets and files for contracts and contract data, you’re wasting time that could be spent on more strategic tasks like contract value analysis and trend analytics. Similarly, trying to solve disputes or clarify terms after the fact consumes resources that could be better used elsewhere.
A sound contract management system can help. With advanced searching, you can precisely search for documents, key data, and smaller metadata. You can leverage familiar search history, saved searches, and ‘Did you mean…?’ functionality. Reports on your contracts – such as ‘contracts expiring within the next 90 days’ – can grant you unprecedented visibility and control.
5. Loss of revenue
At the end of the day, poor contract management can hit your organisation where it hurts most – its bottom line. When you don’t stay on top of obligations, deliverables, deadlines or compliance, you risk losing out on revenue.
For example, if you fail to enforce payment terms with a client and don’t follow up on overdue invoices, you’re essentially leaving money on the table. Similarly, if your business is fined for non-compliance or legal disputes, you’re facing costs that could have been avoided. Add in missed opportunities due to a damaged reputation, and the financial impact of poor contract management becomes clear.
A well-managed contract can ensure that payments are made on time, milestones are met, and that both parties adhere to the terms agreed upon. This in turn protects your revenue streams and allows you to focus on growing your business.
Avoid the consequences of poor contract management
Now that you know some of the consequences of poor contract management, it’s time to put your trust in a solution that can take you from contract mismanagement to contract lifecycle management excellence. That solution is Contract Insight®.
Managing the contract lifecycle is a multi-faceted process that, if inadequately overseen, can result in contract management bottlenecks, increase risk exposure, and diminish your organisation’s bottom line. Contract Insight- offers robust and AI-powered contract management software functionality to:
- securely store an unlimited amount of contracts within a contract repository
- create custom and ad-hoc contract management reports
- simplify contract search with QuickSearch.
- streamline CLM with intelligent contract workflow automation
- increase visibility with contract management dashboards and calendars
- track contract financials to control contract spend and manage contract budget
- supercharge contract drafting with pre-approved templates and clauses
- leverage AI-based contract data extraction, field mapping, and clause matching
- enhance contract collaboration and contract redlining
- expedite contract approvals and contract signing with integrated eSignature software.
Contract Insight is an award-winning contract management software solution that’s received acclaim from third-party analysts, legal professionals and many others. Users can successfully oversee amendments and other key contract with comprehensive contract lifecycle management. With a secure and centralised contract database, user permissions oversight, easy searching and electronic signatures, your organisation can seamlessly manage the contract lifecycle and exceed contract management KPIs.
To learn how to more easily draft contracts, get contracts reviewed, collaborate on negotiations, and much more to improve contract management processes, book a free demo of Contract Insight® contract management and eProcurement software today!
Contact John O’Brien, CEO at Four Business Solutions – global business consultants and software integrators specialising in business process improvement.