More often than not, running a successful business means getting a third party on board to provide the required assistance. Indeed, no business is an island, and knowing how to manage your relationships can significantly impact your business. For instance, a 2019 report suggests you can lose 40% of your vendor contract’s value if you improperly manage contracts. Considering the current challenging business climate, the last thing you want is to lose money. Below are six effective ways to manage your vendor contracts.
Discuss your priorities and expectations with vendors
Negotiating vendor contracts may involve a lot of back and forth. However, discussing your business expectations and priorities with suppliers is also critical. Examining the contract’s performance towards the conclusion of its life cycle, whether it may be renewed, renegotiated, or cancelled, is a significant aspect of your vendor management plan. These appraisals will assist you in employing the best practices for subsequent contracts. A good vendor management system gives vendors the clarity they require to satisfy their obligations. You can boost the chances of extending the contract if your third-party vendors appreciate your priorities and objectives throughout the contract life.
Make the scope of the contract clear
Clarifying the scope of your vendor’s contract can save you a lot of trouble later. Also, be certain that the degree of contract management is appropriate for the extent and intricacy of the services. An IT contract, for instance, is likely to be more sophisticated than a commodities supply contract. Consequently, the provisions in the contract may also differ. Does the agreement require regular delivery or a special reservation? What provisions are there for disagreements, underperformance, and wrong shipments? It is essential to ensure that your procurement and legal teams are on the same page to maintain normalcy. You may also put procedures in place if things don’t go as planned.
Implement CLM software
Using contract lifecycle management (CLM) software, you can update your administrative processes and reduce the contact response time. CLM software, for instance, can save time in managing suppliers by simplifying critical steps of contract management, such as authorship, initiation, workflow, contract renewal, and so on. This way, you can optimise your business procedures to boost efficiency, productivity, return on investment (ROI) and maximise your revenues. Likewise, a CLM system gives you the needed tools to expedite contracts and data to identify bottlenecks.
Have an interest in your vendors
Vendors are also businesses like yours. Your third-party vendors will likely value your relationships if you try to understand things from their perspective. Discussing what vendors require to supply products and services efficiently can provide greater results than pressing for cost savings without first knowing their operating requirements. You may follow up on a proposal, look beyond pricing when dealing with them, and consider what they offer. Showing interest in the small details might suggest your keen interest in them and make your vendors feel valued, leading to enhanced performance standards when negotiating contract conditions.
Build long-term relationships with quality vendors
Building lasting beneficial relationships with your quality vendors is more cost-effective than frequently changing suppliers. Since building long-lasting vendor contracts can lead to more favourable treatment and conditions of agreement, why not invest time and resources in building trust in your top-quality vendors? You may employ a contract management system to assess your third-party vendor contracts and monitor performance. These systems can also enable you to examine trends across similar vendor contracts. That makes it simple to discover vendors meeting your performance standards and taking steps to seek long-term collaboration or part ways.
Determine the payment schedule, contract renewals, and contract expirations
You are going to reimburse the vendor once certain duties have been completed. But when will the payments be made? Is it scheduled for weekly, monthly, the last day of the month, or the beginning of the following month? You may set the payment schedule in your vendor contract management system. Also, many businesses have to deal with unwanted contract expiration. This issue is faced by small and large enterprises, impeding effective business performance. Fortunately, implementing the right contract management system can enable you to eliminate unwanted contract expiration by notifying you about expiring contracts. It gives you ample time to consider the contract accomplishments and plan accordingly.
Properly managing your contracts can simplify your relationship with your vendors, reduce costs, eliminate human mistakes, and accelerate your business growth. That can improve your overall business management and take your small business to the next level.