As you start to move from your first customers to your first ten and first hundred you’ll soon start to understand the importance of contract management in business. Contracts are the binding legal glue that allows you to charge customers money. They outline the state of the legal relationship between you and the customer and because of this, they are something that a lot of customers will want to negotiate. It can start small with billing terms giving an extra thirty days to pay and spiral out to demands for unlimited liability.
The reason why the importance of contract management starts to become larger and larger over time is because of the need to keep track of these variations. Each one represents a legal or operational obligation that your startup needs to fulfill to keep your customer and the more customers you have the harder it becomes to manage all of these obligations.
What is contract management?
In the startup world contract management plays a crucial role in ensuring that all parties involved in a contract are on the same page and that the terms and conditions of the agreement are adhered to while making doing business as easy as possible. Contract management involves the entire process of creating, negotiating contracts, implementing, and managing contracts throughout their lifecycle. Effective contract management can help software businesses minimize risks, increase operational efficiency, and improve customer satisfaction. Let’s discuss what contract management is in software businesses and why it is important.
The process of contract management begins with the creation of a contract, often a Master Service Agreement or a template MSA for SaaS. This involves drafting the terms and conditions of the agreement and negotiating them with the other party. Once the terms of the contract are agreed upon, the next step is to get it signed. This involves ensuring that all parties involved understand their roles and responsibilities and that the necessary resources are available to fulfill them and, most probably, it involves a salesperson biting their fingernails with five minutes to go at the end of the quarter waiting for a customer to sign.
After the contract has been implemented, the next step in contract management is usually throwing it in a giant folder with little to no naming conventions somewhere in your company’s vast array of documents. Not great. What you should look to do is implement a folder hierarchy and a document naming convention (super boring, but super useful). The other thing you should be doing at this stage is breaking down the contract and exacting it into a contract tracking system.
A good contract management and tracking system will help you a lot with risk management. This involves identifying potential risks and developing strategies to mitigate them. For example, if you start seeing that several contracts are piling up and you see a risk in the fact that your software business relies on third-party vendors to provide services, the contract management process may involve negotiating service level agreements (SLAs) to ensure that the vendors meet the required standards of service delivery. Similarly, if the software business relies on a particular technology, the contract management process may involve negotiating maintenance agreements with the technology provider to ensure that the software remains up-to-date and secure.
Effective contract management can also improve customer satisfaction. By ensuring that all parties understand their roles and responsibilities and that the necessary resources are available to fulfill them, software businesses can deliver high-quality software products that meet their customers’ needs. Additionally, by monitoring and reporting on the contract’s progress, software businesses can quickly identify and address any issues that arise, improving customer satisfaction and loyalty.
Contract management is a crucial aspect of software businesses and gets more and more important as you start to scale your startup. Effective contract management involves the entire process of creating, negotiating, implementing, and managing contracts throughout their lifecycle. It can help software businesses minimize risks, increase operational efficiency, and improve customer satisfaction. By ensuring that all parties understand their roles and responsibilities, setting up reporting mechanisms to track progress, identifying and mitigating risks, and monitoring and reporting on the contract’s progress, software businesses can deliver high-quality software products that meet their customers’ needs while not letting the data in the background become a mess. As software businesses continue to evolve and grow, effective contract management will become increasingly important in ensuring that data is tracked and you know what’s going on with your customer’s contracts at all times.
What is the importance of contract management in business?
There are a lot of advantages to getting your contract management systems and processes set up early and set up well. Here are just some of them:
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Mitigate Risks: Effective contract management helps software startups mitigate risks associated with partnerships, vendors, and service providers. By setting clear expectations and negotiating favorable terms, startups can avoid potential disputes that can hinder their growth.
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Improve Cash Flow: Contracts that include payment terms can help or hinder startups from managing their cash flow. By setting payment schedules, startups can plan their expenses and ensure that they have enough resources to meet their financial obligations. By having contract tracking of these details you can save your finance team days or weeks of work in trying to bill customers correctly
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Maintain Compliance: Compliance requirements can be complex and time-consuming. Contract management helps startups maintain compliance with regulations and avoid legal penalties.
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Protect Your Startups Intellectual Property: Software startups rely on intellectual property to differentiate themselves from competitors. Contract management helps startups protect their intellectual property rights and prevent unauthorized use or distribution.
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Facilitate Collaboration: Contract management facilitates collaboration among teams by setting clear expectations and roles. By clearly defining responsibilities, startups can avoid miscommunication and ensure that everyone is working towards a common goal.
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Reduce Costs: Effective contract management can help startups negotiate favorable terms that reduce costs associated with product development, distribution, and maintenance.
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Streamline Operations: Contract management can help startups streamline their billing and RevOps functions by automating processes such as contract creation, negotiation, renewal, invoicing, and reporting. This can free up valuable resources and allow startups to focus on their core business activities.
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Increase Accountability: Contract management increases accountability by ensuring that all parties are aware of their roles and responsibilities. This can help startups avoid disputes and ensure that everyone is working towards a common goal.
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Enhance Business Relationships: Effective contract management can enhance business relationships by ensuring that all parties understand each other’s expectations and are working towards a common goal. This can help build trust and foster long-term partnerships.
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Improve Customer Satisfaction: Contract management can help startups deliver high-quality products and services that meet their customers’ needs. By ensuring that contracts are being fulfilled as agreed, startups can improve customer satisfaction and build loyalty.
For any startup that is dealing with B2B contracts that are negotiated contract management is crucial for scaling. By reducing risks, understanding the importance of contract management, getting a better close to cash in the bank cycle, maintaining your compliance, protecting that intellectual property that you’ve created, facilitating collaboration, reducing costs, trimming the fat out of operations, increasing accountability, enhancing business relationships, and improving customer satisfaction, startups can position themselves for scaling. Startups that prioritize contract management are less likely to be caught in the slow grind of finding customer data later on down the road which will save time and money.
