Some businesses still rely on traditional contract management methods including paper contracts, manual filing systems and spreadsheets or emails for contract tracking. Businesses with a small scale of operations may find these processes easy to manage, but this will change as the business starts to scale.
As the business grows, the number of agreements will too. They may also increase in complexity and so manually tracking contracts will no longer suffice. If you can’t keep ahead of key dates, aren’t sure which version of a contract is the most up-to-date or can’t build in enough time and resources to keep reviewing historical items, the business will be at risk of non-compliance and negative consequences.
This article will take a look at best practices you should implement to improve your contract tracking process, how to control compliance issues and why you should use a contract management system to achieve those things.
What is Contract Compliance Tracking and Reporting?
Contract compliance tracking is the process of ensuring all obligations are fulfilled by involved parties to the agreed standard and on time. Things to track can include the quality of a service as well as delivery and payment dates.
Contract compliance tracking can also include ensuring third-parties are up-to-date with security-related requirements and are operating in accordance with industry-specific regulations.
If your business is unable to track this information and report on it to relevant stakeholders, there will be no way to drive corrective action and mitigate contract risk.
Best Practices For Tracking Contract Compliance
1. Store all contracts and key dates in a centralised repository
When contracts are stored in different locations, tracking compliance becomes time-consuming. That’s because time needs to be dedicated to finding the agreements, reviewing the information and ensuring it’s up-to-date. This needs to be done each time something changes, needs updating or information is requested.
The manual nature of keeping these records up-to-date leaves them vulnerable to human error. Stakeholders may not trust the accuracy of the data - and it can be difficult to guarantee compliance.
A contract management system allows you to store your contracts in a centralised repository. Key dates, clauses and extra documentation can be automatically extracted and stored against the master record - so you can always access the latest and complete version of the record.
This centralisation and visibility makes it much easier to track compliance as you can access a single source of truth about your portfolio. A central repository helps you to track and maintain compliance by:
- Providing a visual dashboard of upcoming events such as document expiry and contract renewals
- Keeping agreements in a secure location that can only be accessed by relevant stakeholders
- Saving you hours usually spent searching for agreements which can be invested into more efficient contract reviews.
2. Automatically store key and accurate information alongside each contract
Contract metadata captures all the details of an agreement. This can include:
- Contract start and end date
- Renewal terms
- Force Majeure
- Contractual obligations
- Payment dates
To effectively track this information, you need to extract it and store it somewhere accessible rather than leaving it hidden in spreadsheets and inboxes. Some businesses often assign this responsibility to a sole individual - usually in the legal team - causing high levels of administration and a silo of knowledge as it remains with one person.
If they leave the business or go on annual leave, what happens to the data input? Chances are it may be missed altogether or the responsibility is reassigned to someone who has a different method for capturing metadata. Both of these scenarios can change the accuracy of your records, resulting in non-compliance that your business may be unaware of.
Contract management software can automatically and accurately extract the data for you. Keeping track of key dates has never been easier as you can upload PDFs, scanned documents and upload information that has been handwritten. This standardises data capture, makes it easier to locate information during audits and allows you to easily access information you need to prove compliance.
3. Automatically notify stakeholders when action is required
Manually tracking compliance means dedicating resources to chasing stakeholders when a change is made, an update is required or the contract has progressed further through its lifecycle.
Contract management software automates this process. Rather than metadata simply being stored in a filing system, a CLM solution turns that data into actionable information."
When a renewal, expiry or other key event is on the horizon, the relevant stakeholders can receive alerts directly to their inbox to let them know what action is required and when it needs to be completed by. This is integral for any risk management strategy, allowing businesses to identify and resolve potential instances of non-compliance well ahead of time.
Time no longer has to be spent manually checking if a contract isn’t performing to the expected standard, products haven’t been delivered on time or a third-party hasn’t fulfilled their obligations at all. With automation, the potential for non-compliance, financial and reputational consequences is identified early, acted upon and minimised.
4. Create in-depth reports to share with stakeholders and plan risk mitigation strategies
Manually creating reports from a combination of spreadsheets, inboxes and paper files takes too long. It may also be outdated by the time you come to present the information.
Contract management software streamlines report research and generation. Using the metadata that is already stored in the repository, it allows you to view data-driven dashboards based around spend, risk and performance.
Creating and sharing these reports with stakeholders provides:
- Real-time insights into the compliance status of all third parties
- An accurate understanding of current levels of obligation fulfilment
- Overviews of how much key contracts are worth and associated spend
Whether KPIs aren’t being met, obligations are being fulfilled or an agreement is costing more than agreed, reporting via dashboards gives you the accurate information you need to make informed business decisions and mitigate risks. It can also inform your decision to consolidate or terminate some relationships if there is an ongoing theme of poor compliance.
FAQs On Contract Compliance Tracking and Reporting
What is Contract Compliance?
Contract compliance involves the steps taken to ensure your business is meeting internal and external standards created in the terms of an agreement. It involves regular review of agreements, obligation fulfilment and performance considerations. It will also include ensuring documentation and practices are aligned with regional legislation and industry regulation.
How Do You Monitor Contract Compliance?
The best way to monitor contract compliance is using a contract lifecycle management system. It has all the necessary tools required to track contract compliance, and it also includes features that enable you to audit and report on your compliance status.
No matter what your business goals are, you will be making use of contracts. Tracking contract compliance is one of the best ways to ensure that you get the most value and the agreed outcomes of a contract.
As easy as this sounds, it can quickly become a challenge, especially if you use the traditional means of doing this.Fortunately, the tools contained within a contract management system will help you track, audit, and report contract compliance.
If you're ready to discuss how a contract management system can support your compliance requirements, get in touch today.