Small and medium-sized businesses (SMBs) often face unique challenges in managing their operations effectively – especially in the space where operations meets contractual obligations. One crucial area that is frequently overlooked or mismanaged is Contract Lifecycle Management (CLM). Proper CLM can streamline operations, reduce risks, and improve overall business efficiency. However, SMBs often make several common mistakes that can hinder their success. Here, we delve into the top five mistakes and provide detailed insights on how to avoid them.

1. Lack of a Centralized Contract Repository

One of the most significant mistakes SMBs make is not having a centralized repository for all contracts. Contracts are often scattered across various departments, stored in different formats, and sometimes even forgotten in email threads. This decentralization leads to several issues:

• Difficulty in Retrieval: Finding a specific contract or clause can become a time-consuming task.
• Risk of Loss: Important documents might be misplaced or lost.
• Inefficiency: Without a centralized system, tracking contract statuses and key dates becomes challenging.
• No Unified View of Obligations: When contracts are scattered all over the company, it is impossible to have a clear understanding of all obligations and constraints affecting operations, or decision making.

Solution: Implement a centralized digital contract repository. Modern CLM software like Contract Sage offers cloud-based storage solutions that ensure all contracts are stored in a single, secure location. This allows for easy retrieval, better organization, and improved collaboration across departments.

2. Not Using Technology to Manage and Track Contracts

Another common mistake is relying on outdated methods such as spreadsheets, email threads, or even physical paperwork to manage and track contracts. This can lead to several inefficiencies and risks:

• Human Error: Manual tracking is prone to mistakes, which can lead to serious oversights.
• Lack of Real-Time Updates: Without a digital system, it’s hard to get real-time visibility into the status of contracts.
• Scalability Issues: As the business grows, managing contracts manually becomes increasingly challenging.

Solution: Adopt a comprehensive CLM software solution that focuses on post-award contract lifecycle management like Contract Sage. CLM tools offer functionalities like automated tracking, real-time updates, and advanced search capabilities. These tools can significantly reduce human error, improve visibility, and scale with your business. Additionally, features like AI-powered analytics can provide insights into contract performance and risks.

3. Failure to Monitor Key Contract Dates

Contracts often come with critical dates, such as renewal deadlines, termination periods, and milestone deliverables. Missing these dates can have severe consequences, including financial penalties and lost business opportunities. However, many SMBs fail to monitor these dates effectively.

• Missed Renewals: Failing to renew a contract on time can lead to lapses in service or unfavorable terms.
• Automatic Renewals: Not canceling a contract before the renewal date can lock a business into another term with potentially unfavorable conditions.
• Unmet Deadlines: Missing milestone deadlines can result in breaches of contract and damaged client relationships.

Solution: Utilize a CLM system with automated alerts and reminders like Contract Sage. These systems can notify relevant stakeholders of upcoming deadlines, ensuring that key dates are not overlooked.

4. Poor Risk Management

Contracts inherently carry risks, and SMBs often fail to manage these risks properly. This oversight can lead to significant legal and financial consequences.

• Unclear Terms: Vague or poorly defined terms can lead to disputes.
• Non-Compliance: Failing to comply with contractual obligations can result in legal penalties.
• Unmanaged Changes: Not tracking amendments and changes can lead to confusion and non-compliance.

Solution: Implement a robust risk management strategy based around a post-award CLM system like Contract Sage. This includes clearly defining terms and conditions, regularly reviewing contracts for compliance, and maintaining a comprehensive audit trail of all changes and amendments. Legal counsel should be involved in drafting and reviewing contracts to ensure all potential risks are mitigated.

5. Neglecting Post-Execution Contract Management

Once a contract is signed, many SMBs tend to file it away and forget about it. However, the post-execution phase is critical for ensuring that the terms of the contract are adhered to and that the business derives the expected value. Remember that the creation and negotiation of contracts is only a fraction of the overall life of a contract. The post-execution management often covers YEARS while negotiation might take days.

• Non-Adherence to Terms: Not monitoring contract performance can lead to non-adherence to terms or missed opportunities.
• Lack of Performance Metrics: Without tracking performance, it’s challenging to assess whether the contract is delivering the expected benefits.
• Overlooking Amendments: Changes to the contract post-execution may not be documented properly leading to faulty decisions and unnecessary costs.

Solution: Continuously manage and monitor contracts even after execution with a purpose built tool like Contract Sage. Regularly review contract performance against agreed metrics, track adherence to terms, and ensure all amendments are properly documented. A CLM system can help automate many of these tasks, providing ongoing oversight and management.

Conclusion

Effective Contract Lifecycle Management is crucial for the success of SMBs. By avoiding these common mistakes—lack of a centralized contract repository, not using technology to manage and track contracts, failure to monitor key dates, poor risk management, and neglecting post-execution contract management—businesses can significantly improve their operational efficiency and reduce risks. Implementing a robust CLM system like Contract Sage can address these issues, providing a centralized, automated, and efficient way to manage contracts from inception to completion.