Why are contracts important? 8 crucial reasons
Not only are contracts important, but the management of them and the processes that surround them are even more so. Companies around the world use contracts to negotiate and lock in business. Yet, many businesses continue to focus on sales process automation without paying enough attention to the importance of their contract processes. As a result, contracts often get bogged down in the “last mile” of the agreement, when all parties would like nothing more than to get through to the “done” side — signatures inked, and contract finalized.
To understand why contract processes are so important in your business, here is the latest information on what modern contracts are, how they impact your business, and the process to follow to create an industry-standard contract.
What is a business contract?
A business contract is a legally binding agreement between your company and another party. Contracts can be used business-to-business or business to a client to arrange services and fees for any given project.
For legal validity, a contract needs the following details:
- All parties involved in the agreement
- Considerations of the benefits for each party
- Terms and conditions of contract fulfillment
- All signees must be mentally competent for contract validation
- All work done or products received must be legal for a valid transaction
Why are contracts important?
Contracts are imperative for building trusting business relationships and streamlining important transactions. Outside of that, here are the 8 reasons why contracts are important for your business.
1. Outlines concrete details
A business contract should clearly outline what each party has agreed to do. All benefits, services, and payments should be in the contract to ensure an unmistakable contract outcome. Concrete details also guard against misunderstandings as both parties have a clear expectation of the transaction.
2. Protection for both parties
A written contract that explicitly states each side’s expectations creates legal protection for both parties. You and your company have a clear path of what to do to uphold your end of the contract, as well as what forms a breach of contract.
3. Contract confidentiality
One clause that can be added to a written contract involves confidentiality. If the business contract involves sensitive information, you can ensure secrecy by adding a confidentiality agreement into your written contract.
4. Maintain official records
Once the contract is written and agreed upon by both parties, both sides should maintain a copy of the agreement to have an official record of the transaction. Both your company and the other business or client can work strictly against the contract and complete all services and payments by the close of the agreement date.
5. Mitigate risks
Contracts often go through a negotiation process that ensures both sides are getting the best deal possible. When managed correctly, contracts should have a comprehensive audit trail of every comment and edit made. However, unfortunately, many modern businesses have many of their processes automated—except this one very crucial one.
6. Collaborative tool
From their very creation, contracts are by nature relational and collaborative. Teams can work together to determine their needs through the creation of a contract, building healthy communication and encouraging collaboration. This collaboration begins at the very start of a business relationship, through to negotiation and signature. After a contract is signed, both sides can feel confident because of solid communication from the get-go.
7. Revenue generation
Generating more revenue isn’t just about what’s in the contract, but the process around it. Being stuck in PDFs, documents on a desktop, or email isn’t going to help streamline the process to bring more revenue. For a modern and streamlined approach to contracts, the entire process must be centralized in one source of truth.
8. Consistent branding
Sending out a contract shows your organization cares about having a detailed record of a relationship. A structured and consistent company brand shows care in its contract creation and the interactions that follow. These efforts extend your brand image and promote consistency across the board.
What is the contract procurement process?
The contract procurement process begins when your company identifies a need to be fulfilled or is approached by a client for a specific project. The entire process is complete once the contract is awarded and signed, but there are many steps to get from beginning to end.
Goals of the contract procurement process
There are particular goals you should set in your contract procurement process and these steps can be the same every time you search for, or receive a new contract. Since contracts are legally binding, follow these goals for a successful process:
- Identify products and services
- Create and issue purchase orders
- Ensure timely delivery
- Approve payments
- Establish and meet milestones
- Resolve issues with product delivery
- Communicate issues among the team
- Review proper fulfillment of the contract
Move toward efficiency
Roughly 85 percent of companies still use manual processes to manage contract work. This often creates situations where paperwork gets lost, negotiations stall, and in worst-case scenarios, the entire process falls apart.
With paper contracts, there’s also the problem of data accuracy, since human errors can happen when retyping form information back into a computer. Manual, paper-based contract processes are expensive, less efficient, and outdated in today’s industry.
By using Conga Contracts, all your information is in one place where it can be easily viewed, updated, and shared in real-time to keep negotiations moving and the contract processes simple and more cost-effective. Whether it’s for services, products, an MSA, or a quote, automated contracts make your business processes more efficient and effective.
Make contract processes important
A complete, thorough contract process streamlines your business and helps save time and money every time you enter a new contract agreement. With Conga Contracts, come to every contract negotiation with confidence that you have a strong process in place to get the job done. Get in touch with Conga today to learn more or get started on improving your contract processes.