Vendor contracts are a key growth lever and source of risk for most businesses. How should legal teams approach vendor contract management?
What is a vendor contract?
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:
What liabilities is the company exposed to as a result of its vendor contracts?
How do these documents influence revenue recognition?
When are these contracts due to renew and how do we make those decisions?
How healthy is the vendor-buyer relationship, and what should we do to improve it?
The vendor contract management process
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.
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
For a deep dive on this, read more about how to automate a vendor agreement. The short version is that 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.
- 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.
How to manage vendor contracts
There are certain key features that will be really useful for teams looking to manage vendor contracts specifically. Look for these features in the software you choose to manage contracts:
- 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.
- 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 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
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. Alternatively you can sign up for a free Juro account.
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.