Last updated on February 3rd, 2020 at 02:29 am
Your contract scoring system is an incredibly important part of your business operations. When every contract has a score, you can easily measure your company’s health and find areas for improvement. Every scoring system should be built around the KPIs, or key performance indicators, your business prioritizes — and you can learn how to get started here. If you’re slogging through manually scoring each contract, however, chances are that you’re spending way too much time on the process.
Are you struggling to streamline your contract scoring system or find yourself wondering if it’s causing more trouble than it’s worth? Try some of these important strategies to streamline the process.
1. Use the right contract management software.
Your contract management software makes a big difference when it comes to every aspect of the contract creation and management process, including contract scoring. Look for contract management software that will help generate that score for you. For example, your software might generate a basic score based on standard information fields, allowing you to see at a glance what risks could be involved in a specific contract. If your contract management software doesn’t provide that basic service, it could be past time for an upgrade! Look for contract management software that offers machine learning capabilities so you spend your time where it matters most.
2. Create strict “standard operating procedures” for your contract team.
Every client has unique needs and may have a unique approach to your contract. But that doesn’t mean that you can’t start with a basic set of standards. Create a set of standard operating procedures that will give your internal negotiators a starting point. Those standard operating procedures should already have a base score in place. When your negotiators use a standard contract, they will then automatically know what the contract’s score is. You may also have several basic alterations to your standard contract in place so that you can easily scale it for clients of different sizes or with different needs. The more detailed your list of standard operating procedures or your departmental playbook is, the more easily your entire team can access that information.
3. Make a list of the biggest red flags for your business.
As you create more contracts for your business, you will probably develop a better idea of what not to do with your contracts. Start looking for glaring red flags that could spell disaster for your business — or at least for this specific agreement. These are anything that jeopardizes the contracting lifecycle, the performance of contract obligations, and the contract’s ACV: the three biggest KPIs for any contract. Take the time to write out a list of the biggest red flags. To help streamline the contract creation and negotiation process, consider offering alternatives to many of those red flags and how to negotiate around them. When these flags do show up in a potential contract, your negotiators will know that they’re unacceptable. They’ll also get a better idea of how to fix them on the spot in a standardized, easy to follow formula.
4. Simplify your contracts.
If you’re struggling with contract scoring, the possibility exists that you’re looking at too many elements. Some industries, like the insurance industry, need complex contracts that cover every potential detail. Others, however, need only cover a handful of elements to ensure that your business is covered and the services you’ll provide laid out. If you find that there is unnecessary complexity in your contract scoring process, the contracts themselves may be to blame. Sit down with your legal team and see what elements can be removed from the contracts — or at least which ones can be simplified or standardized so that you don’t have to worry about adding those elements to your scoring process.
5. Keep track of when contracts are due to expire and revise your expectations ahead of time.
When you begin the contract scoring process, you may discover that existing contracts are creating excess risk — or perhaps that they’re simply failing to deliver the payout your business had hoped for. Your contract management software can be a big help when the time comes to renew those contracts. Instead of having your software notify you at the last minute, have it notify you well in advance of the contract’s expiration date. Then you will have plenty of time to revisit the contract and design it in a way that works better for your company.
Keep in mind that revisions to the contract will likely require a new negotiation period with the other company or individual. Failing to take on those negotiations, however, could lead to both of you automatically signing a new version of the old contract — and that means your business will continue to assume both that risk and the lack of profit from that contract. Learn more about how to backward-design your contract renewal process for smoother sales.
Streamlining your contract scoring process is a critical part of managing contracts and ensuring that they meet your business’s overall needs. When you accept too high a risk or fail to score your contracts, you may end up taking on contracts that simply do not generate the profits your business needs — or worse, contracts that cause damage to your business. If you’re ready to start working with new contract management software that is more likely to fit those needs, including basic risk assessment scores for every contract you enter, start a free trial today to learn more about our solutions.