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How Your Contracts Are Losing You Money

June 4, 2019

Last month, we focused on tools you can use to increase your business’ profitability, many of which you already have available to you but which get put to the wayside in the day-to-day push to bring deals in the door. One such tool is your contracts, whether with your clients or your vendors.

It’s not uncommon for a business to start without a standard contract to use when engaging clients. And, as time passes, and work begins coming in the door, there is less and less time to put together a standard contract and/or implement a contract management system that ensures the contracts that are received are effectively negotiated and processed. Many businesses find themselves relying solely on contracts presented to them by their clients, one-sided contracts in favor of the clients that can put the business at significant risk of losing money and other assets. Similarly, in the rush to provide continued support to a business’ growing operations, contracts presented by vendors for supplies and other resources may be signed with nothing more than a glance at the relevant terms.

A business’ contracts are its #1 financial resource in that they secure the business’ revenue and protect its assets but yet, in 2018, the International Association for Contract and Commercial Management found that ineffective contract management was losing businesses up to 9.2% of their annual revenue. The idea of changing how a business looks at its contracts can seem overwhelming and raise concerns about the related cost.

There are, though, relatively simple steps that a business can take to help stop the loss of revenue and ensure its contracts are protecting its assets.

  • Have your own contract. Even if your business is in an industry where it is common to sign your client’s contract, it is important to be able to present to a client or vendor the terms and conditions under which your business is willing to perform. Already knowing and understanding the terms and conditions to which you are agreeable and that you are unwilling to forego will provide you with significant leverage as you negotiate the rules of a relationship with your client and/or vendor.
  • Implement a contract management system. A contract management system does not necessarily require that a business go out and purchase a new app and/or hire another employee. It can be as simple as identifying one or two members of your team who are responsible for the processing, and maintaining a record, of your business’ contracts. Such a system ensures that, at any time, you have knowledge of the contracts to which your business is a party and the amount of revenue and/or cost associated with each such contract.
  • Identify key provisions for negotiation. It is not necessary to revise each and every provision of a contract. Some terms of a contract are relatively standard and will not necessarily alter the revenue to which your business is entitled or increase the risk to your business’ assets. It is important to know and understand which provisions of a contract will have such an impact on the business’ revenue and assets and to have the knowledge and resources to revise those terms so that they reasonably protect the business’ revenue and assets.

Please join us at our FOCUS Event on June 22, where we will explore in more detail steps your business can take to ensure its contracts are not losing it money and are truly serving as its #1 financial resource.

 

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