They say contracts are the lifeline of your business. Naturally, you put a lot of work into making sure every agreement is well-crafted. But your efforts mustn’t end there. You can only truly protect the interests of your business if your contracts are being honored. That is, you must ensure all parties are meeting their obligations.
Contract monitoring will help you do just that. This process involves tracking the contract performance by following key metrics and ensuring you keep up with milestones, important dates, and deliverables.
Let’s discuss why you need contract monitoring and how you can go about it.
Why is contract monitoring important?
Contract monitoring helps companies ensure they meet their contractual obligations. It’s particularly important for emerging businesses and organizations engaged in several agreements.
Here are three ways contract monitoring can help your company.
Identify potential problems
Religiously monitoring your contracts allows you to identify problems before they even happen. You’ll be able to take proactive measures and avoid legal hassle.
Keep all parties in check
Contract monitoring ensures all parties are fulfilling their obligations. This effectively protects the contractual rights of everyone involved. You can rest assured you’re getting what you’ve bargained for.
In particular, contract monitoring helps you track whether contractors meet their deadlines and provide services or products up to standard. It lets you prevent potential negligence or opportunism from the suppliers’ end.
Keep you on track to meeting your goals
Monitoring contracts lets you track the progress of ongoing deals. This helps ensure you’re well on your way toward your business goals.
So, how do you do contract monitoring the right way? Let’s talk about the best practices.
Contract monitoring best practices
The following steps will propel you toward your contract monitoring goals.
Identify what it is you’re monitoring
To make sure your monitoring efforts are effective, you need to clearly define what exactly you’re tracking. You may focus on monitoring contract performance or ensuring the parties meet deadlines and service standards. Or you may put more weight on tracking how long it takes your teams to finish each stage of the contract process.
You can cover all the bases by monitoring key metrics.
- Annualized contract value (ACV). This key metric determines how much an ongoing commercial relationship is worth. It does so by measuring its average yearly revenue.
- Terminated contract remaining value (TRV). This metric helps prevent revenue loss by keeping track of outstanding bills and payments.
- Order value variance from original contract value (OVV). Use this metric to monitor losses from mistakes. A high OVV means you need to improve how you assess your contract goals and communicate with clients. You might also want to double-check that your contract wording is accurate.
- Vendor fraud. Measuring this metric allows you to determine the personal gains generated by suppliers by inputting wrong amounts on invoices, underdelivering products or services, and committing other fraudulent acts.
- Quality. Manufacturing businesses can easily measure quality in terms of yields and the number of defective products. Service providers can use metrics like the rates of complaints resolved and the time it took to resolve them.
And, of course, you need to closely track key dates and deadlines. You’ll have to assign task owners and leverage automatic notifications to stay on top of things. You should also set a buffer period before important dates. For example, you can set alerts to remind you of upcoming renewals. You’ll want to set these notifications weeks in advance so key stakeholders can deliberate on whether they should terminate, renew, or renegotiate the expiring contracts.
Assign monitoring responsibilities to specific people
Contract monitoring needs to be proactive. Even if you have effective contract management software in place, it still helps to assign specific people to particular aspects of the monitoring process. You can guarantee better results and avoid problems when certain people know they’re accountable for the outcome.
Contract monitoring is always an ongoing process, so you need to be clear about task assignments and ownership. You can set up recurring reminders to keep your teams on their toes.
Stay on top of routine monitoring tasks
Even if you have contract management software run by a reliable army of task owners, you still need to ensure nothing falls through the cracks. Do the teams meet all the contract milestones? You’ll have to do a quarterly review to triple-check that everything is running as expected. And if your teams did miss essential milestones, you’ll have to analyze why that happened and how you can avoid it in the future.
Fortunately, you can find quite a few contract management solutions on the market to extract reports and data and get the insights you need to improve your contract processes.
Store all data and documents in a centralized repository
Without centralized data, your contracts may end up stored on many different drives. Your teams will have to search in several file locations for the needed data and documents. It means it will take them longer to complete their tasks. You’ll also have a harder time monitoring contract milestones and key metrics.
Storing all critical files in a single repository will make it easy for stakeholders to find exactly what they need. They’ll have better chances of completing their tasks effectively and promptly. Contract managers will also do a better job of monitoring all tasks and deliverables.
Find a reliable contract monitoring platform
Contract monitoring requires collaborative work. You must keep all stakeholders abreast of the metrics they have to follow and the tasks they’re accountable for. You’ll have to update them on all deliverables, due dates, and milestones. And, of course, you need to keep data and documents accessible to all relevant stakeholders.
The easiest way to achieve all these is to use contract management software that stores all the data and files in a single repository and provides features that allow you to limit access, set notifications, and schedule tasks. It also helps if all stakeholders can make real-time edits to the contracts. This way, everyone will work on the document’s same version.
The right contract management system will also let you track key metrics, pull up reports, and derive insights from the data.
Well-crafted contracts will only take you so far. You need contract monitoring to ensure you meet your obligations and reap the benefits you expect from the agreement. Best practices like setting metrics, assigning task owners, tracking routine processes, and storing all the files in a single repository will help you achieve these ends.
With the help of a good contract management platform, you’ll have better chances of doing all these contract monitoring practices effectively. At AXDRAFT, we offer an all-in-one contract management platform with all the functionalities you need and more. You can see for yourself by booking a demo.
To monitor contract performance, you need to:
- identify specific measures of the outcome you’re aiming for (set metrics)
- assign specific people to take responsibility for the monitoring tasks
- set reminders and notifications for important milestones and dates
- organize all files and data in a single repository
- make them easily accessible to relevant stakeholders
- and extract reports and insights from the data.
Contract management will take you from contract initiation to execution. Doing it effectively requires setting up a system that speeds up the contracting process (contract management software will come in handy) and monitoring compliance with contractual obligations and industry regulations. You’ll have to automate routine tasks, track key performance indicators, manage risks, and conduct regular compliance reviews.
Contract compliance monitoring involves thoroughly examining and documenting the quality of services and compliance to ensure they meet contractual obligations. The best way to get this done is by using contract management software that tracks data and contract terms in real time.
Contract monitoring ensures your company meets its obligations and nurtures its commercial relationships. It pushes all parties to meet their end of the bargain and guarantees you’re getting all the benefits you expect from the contract. It also helps you avoid legal troubles by identifying potential problems.