Failure to properly manage and keep track of contracts can give rise to huge problems and costs for a company and result in loss of intellectual property rights, loss of protection from supplier or employee errors, and reduced legal rights in the event of contractual disputes.
When a contract is lost or misplaced, the company is unable to check the terms and conditions of the particular contracts, the expiration date of the contract, nor properly ascertain payment and billing dates. Quantities of products and durations of services supplied to, and received by, your company are unknown, and this opens up a myriad of potential pitfalls which could have dire results.
Consider the following scenarios:
- Imagine being currently locked into a contract that you know is coming to an end soon. You don’t want to renew, and in fact, you’ve already lined-up a better deal with another supplier. You go to your filing cabinet to check the details on the contract, and it’s not there. You look high and low, to no avail. “Ah well,” you think to yourself, “I’ve got a couple of months at least to find it.” A few months later, you find the contract, misplaced in the wrong section. To your horror, the contract expired 2 months ago, and renewed automatically at a 10% cost increase.
- You go away on vacation, leaving your employees to handle the office. They do a good job of making sure all the payments that you left them are paid on time. The only problem is they miss the most important one, as you forgot to list it and there was no other reminder of its importance. Your supplier doesn’t like this and files a lawsuit for breach of contract.
- Your company is being audited. They find discrepancies in purchases and the tax paid. You are positive that the missing money was all related to payments and purchases made with regard to one specific contract. You fetch the file, then find that it might as well be empty. There is nothing in there to back up your purchases or payments!
These examples are extreme, but they show how easily a business can get into trouble through contractual negligence- misplacing contracts, misfiling and not keeping records with contracts.
An easy solution to these paper-based problems would be to employ contract management software within your business. All three scenarios mentioned could have been easily avoided by setting reminders of expiration and payment dates, and uploading receipts and invoices to the cloud.