Contract Management in the Small-Business World

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As a successful small-business owner and entrepreneur, Amir Landsman has had extensive experience in the field of contract management. Understanding the key elements that make up modern contract management theory and taking advantage of technological advances in this field can help small businesses achieve greater success in today’s competitive marketplace.

What Is Contract Management?

Contract management is the process of tracking and ensuring compliance with the provisions of contractual agreements between companies and their employees, vendors, affiliated partners and clients. These provisions may include deadlines, required payments, ongoing business relationships and nondisclosure agreements. Some of the most common contracts in the business world include the following:

•  Purchase orders

•  Employment arrangements

•  Construction contracts

•  Invoices

•  Vendor agreements

•  Contracts governing intellectual property rights and ownership

Managing the risks associated with these contractual obligations can help companies achieve more financial stability and can ensure the most positive relationships with clients, vendors, partners and staff members.

Risk Management

Remaining in compliance with all local, state and federal laws governing contracts can be challenging in itself. When combined with the risks inherent in contractual relationships, however, the need for contract-management strategies that include risk assessments and ongoing compliance monitoring becomes obvious. In a very real sense, contract management is risk management and offers companies a solid defense against legal missteps and failure to meet their obligations. A comprehensive contract-management plan can also allow for fine-tuning on the vendor side of the equation and can provide companies with the information needed to ensure profitability.

Creating the Contract Management Plan

A workable contract-management strategy must incorporate several key elements:

•  Staffing arrangements that provide support and oversight for the contract-management process

•  Information technology solutions that streamline evaluation and assessment of current contracts and provide useful reminders for upcoming deadlines and payment dates

•  Contract-creation software packages that allow customization and the incorporation of boilerplate text to reduce response times

•  A plan for converting existing contract information to digital format and a centralized data storage system for maintaining that information securely

•  Access to specialists with a range of skills that may include legal, financial and compliance expertise

Depending on the nature of the business, other components may also be useful. As an entrepreneur in the financial-services field, for instance, Amir Landsman might require accounting packages, risk-assessment software and staffing solutions specifically geared to serve the needs of his small business.

Establishing Parameters for Contract Provisions

Commercial firms typically engage in large numbers of similar transactions during the fiscal year. Although the items purchased by customers may vary widely, the terms of sale and the time frame for payment generally remain the same from one sales agreement to the next. Creating forms that reflect the general terms and conditions for sales contracts can save time during the purchasing process and can ensure uniformity for all clients of the company. Similarly, employment contracts can be standardized to ensure that all staff members are treated equally and fairly. This can relieve some of the workload from human resources departments and can improve employee morale throughout the workplace.

Optimizing Vendor Relationships

The reporting functions in modern contract-management software systems can allow companies to identify underperforming vendors and to compare sourcing options for materials and inventory more directly. In some cases, this can reduce the overhead costs for commercial firms and can allow manufacturers and service providers to manage their budgets more productively. By identifying and retaining suppliers with proven track records for reliable delivery and affordable pricing and eliminating those that do not meet expectations, small businesses can make the most of their available funds. Contract-management strategies can ensure the most effective supply-chain arrangements for these corporate entities.

Legal Considerations

Especially in the financial and medical fields, retaining required records and ensuring easy access to this data can present significant challenges:

•  Healthcare providers must comply with the provisions of the Health Care Portability and Accountability Act of 1996, more commonly referred to as HIPAA. This legislation requires medical facilities and individuals in the healthcare field to protect patient information and to provide their patients with information regarding when and how that information will be used in the healthcare setting. Other regulations and requirements also govern the interactions between patients, insurers and medical-care providers.

•  Financial advisors and service providers are required to comply with similar privacy regulations under the Gramm-Leach-Bliley Financial Modernization Act of 1999. Although not all financial institutions are subject to the provisions of Gramm-Leach-Bliley, the general principles of this legislation allow customers to opt out of sharing personally identifiable information with any third parties not directly related to the processing, marketing or legal requirements of their transactions with the financial-services provider.

Small-business owners often find it difficult to maintain legal compliance with the rules governing customer interactions, retention of financial and medical records, access to records for patients and clients and general accounting practices. Contract-management experts and customized software packages can often provide added support for taking on these challenges and creating a workable strategy for growth and profitability.

Centralized Storage

Going digital can further streamline the contract-management process in the small-business environment. By investing in a comprehensive contract-management software package, these companies can often create a centralized repository for company data and establish tiered access for staff members. Digital storage systems typically provide a wider array of search options and can deliver faster and more accurate results. This can ensure full compliance with accessibility requirements and can allow companies to respond more quickly to changing market conditions as they arise.

Integrating contract-management processes into existing workflows can produce significant benefits for small businesses. By standardizing contracts and creating boilerplate language for use in all corporate interactions, these companies can reduce their legal exposure to risk and can ensure uniform handling of these ongoing agreements. Improved access to needed data can increase productivity among staff members and may even boost morale in the workplace. As vendor relationships and partnerships become more complex over time, contract-management systems will help small businesses to manage data more effectively and to achieve greater success in today’s highly competitive marketplace.