Over the lifespan of business agreements, contracts often fail to deliver to their full potential and can start to leak value. According to the International Association for Contract and Commercial Management (IACCM), you could be losing up to 4-9% of your annual revenue due to poor contract management. If you ever find a difference between the money you expected to make when you agree to a deal and the money you actually make after the work was completed, you may be suffering from contract leakage.
Have you ever noticed…
· Customers paying late, or not at all
· Customers asking for changes beyond the scope of agreement without paying for the extra work involved
· Changes to the cost of providing your product or service being due to reasons outside of your control
· The time it took to provide your product or service was longer due to reasons outside of your control
· You have disagreements with customers about what was agreed upon in the first place
If so, you may want to stem the leakage of value from contracts.
Contracts may sometimes be unclear on certain aspects or have insufficient service descriptions, resulting in misconceptions about what is being offered. Generic downloadable templates are not usually suitable for most business agreements and their usage should be limited to only minor agreements with non-significant value or risk.
Having a good templates with tailored provisions and that include alternative clauses for common changes is crucial to avoiding value leakage. It is also important to ensure that there is consistency throughout the agreement and between agreement templates, making sure nothing is left out. Also, we must look at the scope of the contract – have any aspects been left out? What happens if something is out of your control? Do you have sufficient remedies in place?
Management of Contracts
Contracts can be the bottleneck of business deals, so it is important to consider budgeting how they are made, ensuring better templates and guidelines can be made, and then playbooks can be implemented. Better contract management will aid in the better management of terms and conditions, dealing with expirations and renewals, claims and any disputes. The contract is merely a framework, it must also be clear and understood, to ensure it can be well functioning.
These leaks can cause you to lose revenue and reduce your profitability. This is why at Strand Sahara we have designed our contracts with the causes of revenue leakage in mind so that they effectively minimise the risk of any leaks and protect your profit margins.
Click here to find out about the technology we use to make this management easily accessible, affordable and relevant for the entrepreneurs we serve.