Poor contract management can be defined as not managing or keeping track of a contract once signed. What is the cost of lousy contract management? The naked truth is that poor contract management has dire repercussions. These poor contracting practices can wipe down your company’s financial health. Poorly managed contracts go beyond inefficiency and risks.
They are also expensive in terms of time, unnecessary cost, and missed opportunities. Sometimes it takes clashes for members to see the risks of operating without a good contract system. However, you can avoid all these costs and risks by implementing reliable contract management software. Below is an outline of the risks and costs resulting from poor contract management.
Disorganization in Workflow
Poor contract management causes your contract workflow to be inefficient, lowering your production levels. Workflow issues can slow down or even interfere with deals. Confusion in your contracts leads to increased risks. Disorganization usually comes as a result of a lack of a central place for your file storage.
Loss of Agreement Papers and Files
Paper documentation can be misplaced or misfiled, and searching for them can slow down the contracting processes and consume a lot of time. IF a company loses the essential agreement files, they damage their relationship with their client, making huge losses.
Missing Renewals and Deadlines
In some cases, you can miss a renewal just by not realizing the due date or being caught up in the daily routine. If you miss the renewal of the contract, you can be locked in for about three years. This can lead to the loss of thousands of dollars in a single year.
If you have a poor contract management system, it can lead to high costs and disruption in delivering the product. On the other hand, if an organization does miss the renewal dates, they will pay for services they no longer require. With a stagnant or relaxed contract management system, organizations could be performing under expired contracts and not realize.
This kind of risk can be dealt with by setting up automated alerts and alarms to the contract record.
Contracts can face risks such as contract breach, which occurs in cases where the contract got mismanaged. It is so obvious that only legalized members have access to any information about contracts in an organization.
A poor contract management system can cause a lot of harm to an organization because these confidential files or contracts will be accessible to anyone leading to mishandling of the files or the files being exposed to an organization’s competitiveness.
Many contracts will contain confidential information. If the contacts are poorly managed, you risk this information being breached to Commitments made to clients, whether it’s delivering their orders in the agreed time or payments within the agreed time must be met. Storing your contacts in an insecure place can expose your contracts to risks. With the implementation of a sound contract system, there is no need to use the filling desks, reducing the displacement and loss of the files.
This can be mitigated by using encryptions to protect your contract from unauthorized persons.
Employees need reports that will inform them in advance of potential problems before they become a nightmare. A poor contract management software denies business owners a configurable report; hence data is not actively turned into actionable reports; gaps remain unidentified until a serious problem emerges.
Penalty Costs and Drawbacks
A poor contract administration can make you disrupt your contract terms, leading to severe consequences such as penalties and fines. Organizations have agreements that they have to obey at all times. You have to verify the vendors to avoid huge costs or severe consequences to the organization.
Poor Financial Visibility
This means that with a poor contract management system, you might end up overcharging vendors making you lose their business. Also, if you undercharge a customer, you might end up losing money. Everyone is supposed to be charged reasonable charges to maximize profits.
More so, poorly managed contracts are expensive. Therefore, poor contract management can lead to bleeding costs, one of the largest risks a company can encounter. Dollars can get wasted in underperforming contractors and missed automatic renewals. It can also be a result of missing essential contract dates and losing the business.
Inefficient Sign Off Processes
It’s super hard going around getting every person’s signature, and it will take forever to mail the contracts around. Delays in the signature processes hinder the counterparties from realizing their mutual benefits.
In summary, the highlighted areas above result from poor contract management, which costs a company a steady erosion of profitability. These contract killers will always be there, and it’s the role of an organization to make sure they have implemented a sound contract management system. A good contract management system can benefit your company vastly. However, not implementing a proper tool to the system can lead to a lot of uncalled-for downfalls.