How to set up a vendor contract management process

Juro knowledge team, 22 January 2021

Vendor agreements are a key growth lever and source of risk for most businesses. How should legal teams approach vendor contract management?

Use the menu below to navigate this resource and learn more about managing vendor agreements.

What is a vendor contract? | What is vendor contract management? | Vendor contract management process

How to create vendor contracts | Key features | Useful integrations | Vendor negotiation | Get started

 

What is a vendor contract or vendor agreement?

A vendor contract (or vendor agreement) agreement sets out the terms and conditions of a purchase, and is an important touchpoint between the buyer and the seller. For the vendor or supplier, the contract helps to recognize revenue. For the buyer, it’s about keeping track of spend. 

 

What is vendor contract management?

This is the process of creating, negotiating, agreeing, storing and tracking vendor contracts, to enable legal, procurement and finance teams to manage risk and renewals.

Typically if a business doesn’t have an established procurement team (because, for example, it’s a high-growth scaleup in the early stages), the legal team will take ownership of these agreements. Vendor contract management is about creating a robust and standardized process, from end to end, to help manage four Rs:

Risk

What liabilities is the company exposed to as a result of its vendor contracts?

Revenue

How do these documents influence revenue recognition?

Renewals

When are these contracts due to renew and how do we make those decisions?

Relationships

How healthy is the vendor-buyer relationship, and what should we do to improve it?

The vendor contract management process

Companies working to simplify their vendor agreement process usually experience pain in both pre-signature and post-signature stages:

  • Pre-signature, clunky, manual contract processes mean that teams working on vendor agreements have to jump between several tools: editing in Microsoft Word, negotiating with the counterparty over email, discussing with colleagues in Slack, reviewing tracked changes, converting to PDF, signing via electronic signature, and finally saving fully signed contracts in shared drives.

  • Post-signature, filing and managing these contracts is a time-consuming process. Without contract automation, vendor agreements are often saved as PDFs – or worse, printed and shoved into the back of a filing cabinet. PDFs are difficult to search, making it hard to keep sight of important terms, renewals dates and other critical information. 

For this reason, companies looking to simplify vendor agreements often look to create them as digital contracts in a contract automation platform.

In creating this process, it’s incumbent on legal teams and their business colleagues to make sure contracts:

  • pass quickly through the relevant stages of the lifecycle;
  • reach the right people at the right time; 
  • make their data accessible to anyone who needs it; and
  • allow their risks to be surfaced easily.

To make this happen, forward-looking legal teams will often adopt contract automation through a digital contracting platform. The process should look like this:

vendor contract management process

Its key phases are:

Create - generate contracts from templates controlled by legal

Collaborate - stakeholders make suggestions and amends to contracts internally

Negotiate - parties to the contract make suggestions and redlines until both sides are happy

Approve - the legal teams signs off on the agreed terms

Sign - parties use secure electronic signature to agree the contract

Track - the legal team can store and search through contracts post-signature to surface important information and dates

Renew - automated renewal reminders let contract owners know when the vendor contract is up for renewal

Contracts can be exited at this point if there's no intention to renew them.

Using this kind of workflow, in a browser-based contracting platform, helps teams to collaborate on vendor contracts quickly and efficiently.

How to create vendor contracts

Some of the most successful or fast-growing companies accelerate revenue by improving how they engage with buyers, so it's important to bear in mind the experience a users has with a vendor contract. A poor experience can be offputting, slowing down or even blocking signing completely.

As the value of these relationships increase, so too can the length, density and complexity of the vendor agreements used to define them, both in terms of content and process. This introduces friction, which can have serious consequences – especially in the case of venture-backed scaleups with aggressive growth targets. 

Modern teams have moved past the traditional method of creating contracts - copying and pasting from an old Word document - and instead use automated templates to generate contracts.

The legal team (or whoever ultimately ‘owns’ the contract) creates the template in your contract automation platform’s editor, defining the standard terms for colleagues to use in their agreements.

Business users can then answer a short Q&A to populate the key fields and generate a vendor contract of their own. To optimize for a fast signature, it’s important to make sure the terms reflect your best version of the contract - if the language is always negotiated, the delays this creates will frustrate the efficiency gains of automating the template in the first place.

Here are three tips to make your vendor contracts look inviting:

  • Brand it. Charts, tables and images can make your contract more engaging. Include the logos of both companies at the top of the document to help visualize your commercial relationship and make the contract process more human.
  • Use layering and linking. You don’t need to include every relevant policy or document in your vendor agreement. Find a contract collaboration platform that lets you bundle and attach documents or link in the text. This way, you can keep your agreement clear and concise, while also providing your privacy policy or data protection Ts and Cs (for example).
  • Foreground key terms. There’s no point hiding important terms in jargon-heavy clauses – this only alienates the counterparty and guarantees a poor user experience. Instead, identify the most important terms in your vendor agreements and put them front and centre to close the deal faster.

Read more about how to simplify a vendor agreement.

Key features to manage vendor agreements

If you’re looking to build a contract workflow for vendor agreements, look for a contracts platform with the following features: 

  • Contract repository: make sure your platform can handle both new and legacy contracts, so that you can create a contract repository that acts as one source of truth for all your vendor contract data.
  • A dynamic, rich text editor. This is a must-have if you want to create beautiful agreements. Engaging visuals and well-crafted contracts can improve your brand reputation and help to simplify the information you’re setting out, reducing time-to-sign.
  • In-browser commenting. The ability to negotiate within the document helps teams to manage version control, maintain an audit trail of changes and streamline the negotiation process.
  • Approval workflows: this functionality allows you to set up a system where commercial colleagues can create their own contracts, but the legal team will always have final approval before they’re sent for signature
  • Renewal reminders: don’t get caught out by a costly auto-renewal that leaves you paying for another year of a product you don’t use. Set up automated contract renewal reminders to track key dates and give you plenty of notice Also attachments to append different stuff to ingredients
  • Export and import to/from Word and PDF: some vendors will be too small or traditional to handle digital documents, and you might have a backlog of PDFs that are still in effect. Make sure your contract automation platform can handle this. Juro can take vendor contracts out into Word format for negotiation, and then back into Juro, without losing contract metadata
  • Table views: vendor agreements can quickly grow in volume, and it’s important to be able to sort through them quickly, with something like a table view, to easily surface the documents and types of document you need, when you need them
Juro can take vendor contracts out into Word format for negotiation, and then back into Juro, without losing contract metadata

Useful integrations

  • Calendar integrations. Stay up to date with dates and deadlines. Notifications will remind you of renewals on the horizon.

  • Slack. Receive notifications when changes are made to the contract, offering full visibility on the negotiation process.

  • Email. Automated notifications ensure the vendor agreement process doesn’t lose momentum.

  • Excel. Export your contract data into a spreadsheet and share insights with other teams in the business.

  • Business intel tools. Pull contracts and metadata into useful reports. Examples of business intel tools include Looker and Tableau.

How to approach vendor negotiation

Negotiation of your vendor agreements can be stressful if you don't prepare well and get clear on your objectives before you start.

Vendor agreements are amongst the less-negotiated contracts in a business, compared to complex licensing agreements or multi-year commercial partnerships. But although vendor agreements tend to sit towards the low end of the negotiation scale, they might still face some pushback depending on the purchase value and quantity, the parties to the contract, the type of goods or services being sold, and the contract negotiation ability of the parties.

The power dynamic between the buyer and the vendor can have a big effect too. If the vendor is a large, well-established business, smaller businesses may struggle to negotiate terms. Contract value also comes into this: at certain price levels, companies may not allow negotiation as the cost of negotiating terms on a low-value deal may be higher than the payment itself.

The following terms and clauses are some of those most commonly queried or negotiated:

  • Termination rights

  • Service levels

  • Reporting obligations

  • Auto-renewal 

  • Financial elements (such as interest and exchange rates)

  • Use of IP (logos on the vendor website, for example)

  • Data use (aggregation and anonymization)

  • Data removal when the service ends

The legal team is usually responsible for negotiating these terms.

Free vendor contract management software

If vendor contracts are painful for your team, or your business, then step one is getting to some level of organization. This might just be a spreadsheet - you can use this free template to get from zero to one.

It's important to choose a solution that’s easy to adopt - if colleagues won’t follow the process for vendor contracts, then you’ll end up creating more risk as teams create documents offline. Juro is designed with ease of use in mind - check out these reviews on G2 for more information. 

If you’re looking for a bigger deployment, or to speak to a specialist about integrating vendor contracts with the systems you already use, hit the button below and we’ll be happy to help.

Topics: Legal operations

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