Businesses often have to manage large volumes of contracts as they scale. With different terms and conditions to manage and oversee, businesses often bring in legal professionals, or sometimes establish legal departments in-house for contract compliance.
In this post, we’re going to focus on what contract compliance is, its importance for businesses, best practices, and the challenges that many companies face to ensure contract compliance.
Contract compliance simply refers to a series of procedures that businesses establish to ensure that they adhere to the terms and conditions specified in a contract. Commonly, contract compliance requires businesses to periodically review their active contracts, establish protocols and check to ensure they comply with the clauses within.
This is a core component of a company’s contract management strategy, and it’s designed to ensure that contracts are executed in line with the terms and conditions agreed upon. Effective contract compliance also helps companies mitigate compliance risk, which is the risk that a company may violate laws, regulations, or codes, resulting in fines or penalties.
Companies usually create internal protocols to review contracts. In some cases, contract managers and legal teams to oversee contract compliance. Contract compliance is an ongoing process, requiring planning, execution, tracking, and further improvements.
Contract compliance helps businesses reduce financial, organizational, and compliance risk. In the case a company is found in breach of contract, they’re likely to be fined by regulatory bodies.
Contract compliance also plays an important role in the procurement department. Companies have different contracts with discrete vendors, so compliance is necessary to boost the chances of renewals or expansions.
In some cases, AP teams have to refer to invoices and match them with the terms and conditions listed in the original contract. It’s imperative for businesses to abide by their contractual obligations to reduce costs and improve operational performance.
If companies fail to meet compliance standards, it’s likely going to affect their reputation, and their relationships with vendors. Compliance helps improve trust and eventually leads to more favorable terms with vendors.
There are several best practices for contract compliance that businesses should follow.
Companies that do not establish standardized approval workflows often suffer from inefficiencies throughout the contract compliance process.
Make sure you create dedicated workflows for scrutinizing and evaluating contracts, and getting them signed by a relevant individual to confirm compliance. These processes must be established so that companies can sign off on compliant contracts and track them throughout their lifecycle.
Several departments or individuals play a key role in filling a particular contract. For every task, make sure roles are clearly defined so teams know who to approach.
Managing different contracts is often difficult. With an advanced software program like SoftCo Contract Compliance, companies can easily manage requests, purchases, and oversee their contract spend through a centralized dashboard.
Such a solution offers various benefits:
Contract compliance gets increasingly complex as organizations grow. Managing the sheer number of contracts is often difficult for growing companies, which is why it’s necessary to use a software solution.
Here are some of the biggest challenges related to contract compliance:
It’s important for companies to maintain a balance between contract reliability and the amount of time or resources consumed in overseeing contracts. Using contract compliance software can help businesses overcome this problem.
Contracts often undergo several changes and updates before the final one is ready for review. Making sure that different versions are stored in a centralized archive is important. This allows teams to quickly match invoices with the final contract and mitigate communication issues.
The regulatory landscape continues to evolve and change over time, with regulatory bodies introducing new guidelines every now and then. It’s imperative for companies to make sure that they update their contract terms based on new regulatory guidelines.
Given the fact that companies often have different types of contracts with vendors, using a contract compliance solution is a fantastic idea. SoftCo’s system integrates seamlessly with the eProcurement module and offers a secure repository for storing all vendor contracts.
You can also view a series of comprehensive, highly intuitive reports, set alerts for expiring or contracts that need to be renewed, and set user permissions for contracts too.