Contract Management - Its Secrets for SMEs

When we talk about “Commercial Contract Management”, the majority think it is about writing terms and conditions. Some perceive it a “claim” task to obtain additional income in projects. This last view is, admittedly, quite common in France.

But is this really the Commercial Contract Management? Alas, sometimes it is reduced to that. But not always…

The best Commercial Contract Manager will surely tell you about the average loss of value of 9.2%, due to poorly managed contracts. Yet few are those who know how to recover them.

Here, we want to show you how you can get a recovery of about 3-7%, almost immediately.

You may not believe me, after all, there are people out there that dare making fake promises. But, if … it was true?

However, I must begin with 2 important prerequisites:

1. the following applies to SMEs only,
2. and only those that face the complexity arising from their transformation through digitalization (meaning here, that some of their services will now be accessible by internet).

Is to build adapted general business conditions. But we do not speak of GBCs of 6, or even 12 pages. Far from it, they will have to be:

• Commercial – covering your business in a concrete way, including your process steps
• In your image – reflecting your company at its right level of quality
• Simple – written for non-lawyers
• Complete – protecting you against real risks
• Short – leave the ‘ghost’ risks to multinationals
• Fair – taking care of all your obligations, without pushing them unnecessarily on your contract partner

Tip& Hint: Take the time to familiarize yourself with your competitors’ terms and conditions. This will allow you to know them (it’s quite informative, you’ll see!), enable you to do better and to know how to argue best to out race them.

Make contracts templates, covering the exact scope of your services / products. Do not leave out those unclear items.

Good to know: “40% of contracts do not produce expected value and involve some disagreement (expressed or not), because the scope was not clarified between the contractual partners”

Your goal here is twofold:

• Lose as little time as possible during the contracting phase
• While ensuring that the scope is clear enough for your client (it must be discussed), in order to provide your services in the most optimal way possible

This means that you make sure that your sales process is fast and fluid, taking into account what we call the:

• ‘4 go / no go factors’ (avoiding spending time on proposals that are unlike to be won), and
• ‘5 validations’ before providing a contract to the client

Did you know? “Simple contract handlings costs an average of 1’900.-, for a complex contract, the average cost is about 10x.”

You may need to invest a little more time validating the scope, but you will eventually gain more than double the time by: increasing your of win chances, reducing your sales costs (up to 50% ) and conflicts (30%).

Then, you need to manage your negotiations effectively.

Tip& Hint: “Focus on successful relationship with your contract partner, rather than on highly hypothetical legal risks (without neglecting them entirely, however)”

When you have done all of this, make sure your sales team understands the issues and makes the best use of the tools you have prepared for them. At this point, you must already see a clear improvement.

Take a deep breath, you’ve just reached a true milestone!

Make sure that the services with your customers are up to your company image. Again, your contract will be a useful tool:

Tip & Hint: “As always, it’s in good preparation that we find the top quartile actors”

• The transmission between the sales and delivery team must be done with care
• The governance of the project will be well established (in a proactive approach, it is here again that we distinguish the best ones), meetings, management of rights and obligations, metrics and compliance, subcontractors’ management, gap analysis with costs and deadlines and risks and opportunities. I know, I mentioned a lot here, but these are the key points!
• Be sure to manage billing on time and
• Finally, the contract changes are to be managed fairly, but without omittion

“Here, we talk about 3-5% more revenue “

Consider communication, effective conflict management, keep high satisfaction and future collaboration options.
And think like your customers do!

Tip & Hint: “Looking for a new client costs 7x more than keeping your client! “

If you put these steps into action, you should get at least:

• More cash
• Revenue increased by 3%
• Costs decreased by 3 points (i.e. an improved profit margin)
• Motivated salespeople
• Secured delivery efficiency
• Increased customer satisfaction
• A strengthened reputation
• And maybe, you can sleep better!

Have a question? Do contact us: albert@schot.ch

Statistics in this blog mostly come from research performed by the IACCM (International Association of Contracts & Commercial Management).