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The Pros and Cons of Outsourcing Contract Management

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The Pros and Cons of Outsourcing Contract Management - Contract Sent

When you’re trying to get your business off the ground and scale your sales team, contract management is a crucial component of operations. It involves the admin of contracts of the contracts that you’ve set up with your customers and the tracking of all the details contained in these. While some businesses prefer to manage contracts internally, others are exploring the benefits of outsourcing this function. Like any strategic business decision, outsourcing contract management has its pros and cons. Let’s have a look at creating a more in-depth understanding of the potential benefits and challenges of outsourcing and have a look at how you get it done.

The Pros of Outsourcing Contract Management

1. Access to Expertise

Outsourcing contract management often means access to specialized knowledge, skills, and tools. Contract management services are well-versed in the latest best practices, regulatory changes, and technological advancements in their field, and finding one that has industry experience in your company’s industry can be extremely helpful. They can provide expertise in areas like risk management, compliance, and analytics, which can be particularly valuable for businesses that don’t have these competencies in-house. This becomes very valuable when you need to go through due diligence with an investor.

2. Cost Savings

Employing a full-time, in-house contract management team can be costly, especially for small and medium-sized businesses. Most companies look to scale up and then backfill their information later. This can be very costly if not downright distracting to a team later down the road. You also need to understand the tradeoffs of not doing this early, are you going to miss customer contract renewals or open the company up to too much risk because you don’t have full oversight of your contract data? Outsourcing can be a more cost-effective option, as it reduces the need for recruitment, training, benefits, and other associated costs. Furthermore, it converts fixed costs (salaries) into variable costs (services), providing more flexibility.

3. Efficiency and Scalability

Contract management firms utilize advanced tools and technologies that can streamline and automate many routine tasks. This can lead to greater efficiency and accuracy in contract administration. Additionally, outsourced services can be easily scaled up or down to match your business needs, offering a level of flexibility that can be harder to achieve with an in-house team.

4. Focus on Core Competencies

By outsourcing contract management, companies can free up time and resources to focus on their core competencies. Usually, contract management will be a task taken on by the revenue ops team or the legal team and can drain resources. Outsourcing allows them to dedicate more attention to what they do best, which can drive growth and competitive advantage.

The Cons of Outsourcing Contract Management

1. Lack of Control

When contract management is outsourced, companies inevitably give up some control over this function. This can potentially lead to communication gaps, misunderstandings, or differences in priorities between the business and the service provider. One of the key things to do here is use a tool that allows you to communicate and have oversight with features like legal dashboards.

2. Dependence on the Service Provider

Outsourcing can create a dependence on the service provider. If the provider faces issues (e.g., financial troubles, changes in leadership, etc.), it could disrupt your contract management function. Furthermore, transitioning back to in-house management or a different provider can be a complex and time-consuming process. As with anything you should have redundancies built in.

3. Confidentiality and Security Concerns

Contracts often contain sensitive information, and handing this data over to an external provider can pose confidentiality and security risks. While most contract management firms have robust security measures in place, the risk can never be eliminated. It’s super simple but you should always have an NDA in place with these types of engagements, using a template NDA can do the trick.

4. Potential for Lower Quality Service When Outsourcing Contract Management

While professional contract management firms typically provide high-quality services, there’s always a risk that the service may not meet your expectations or needs. Differences in company culture, operating procedures, or standards of quality can potentially lead to friction and dissatisfaction.

Outsourcing contract management can offer significant benefits, including access to expertise, cost savings, efficiency, and the ability to focus on core competencies. However, it also comes with potential challenges, such as a lack of control, dependence on the service provider, confidentiality concerns, and the risk of lower-quality service.

Take into consideration factors such as your size, industry, the complexity of your contracts, your internal capabilities, and your long-term strategic goals. Outsourcing contract management is not a one-size-fits-all solution, but in the right circumstances, it can be a valuable strategy for enhancing contract administration and driving business success. One of the key decisions you’ll make is when to implement contract management practices to start with, at what point should this be moved internally, and when it makes sense to be outsourced or to use a tool like Contract Sent.

Outsourcing Contract Management

I’m Convinced. Where do I Start?

Getting started with sales contract management can be something that a lot of businesses put off. We’ve got better things to do. But it has a large trickle-down effect on several things in your business. From renewals to revenue recognition. While many businesses manage this process internally, outsourcing can most definitely be an attractive option for those looking to increase efficiency, reduce costs, and gain access to specialized expertise. If you think it’s time to get started here are a few steps you need to take.

1. Identify Your Business Needs and Objectives

Before initiating the outsourcing process, it’s crucial to identify your specific needs and objectives. Are you looking to streamline the contract lifecycle, ensure compliance, minimize risk, or all of the above? Your objectives will determine the kind of service provider you should look for and what services you’ll need from them. Some services will simply organize your data while others will help you with the contract lifecycle end to end. Understand what you need before getting started.

2. Research Potential Legal Service Providers

Once you’ve defined your needs, start researching potential service providers. Look for firms that specialize in sales contract management in your industry and have an understanding of how to work with companies your size. Review their services, client testimonials, case studies, and any industry accolades or certifications.

3. Request Proposals

When you’ve shortlisted potential providers, request proposals from them. These should detail their proposed solutions, costs, and timelines. A good proposal will show a clear understanding of your needs, demonstrate how the provider can address them, and provide a transparent breakdown of costs.

4. Evaluate Proposals

Evaluate the received proposals based on their responsiveness to your needs, proposed solutions, costs, and the providers’ track records. Consider factors such as the providers’ expertise, technology, and support services. Don’t forget to take into account their reputation, financial stability, and any potential security or confidentiality concerns.

5. Negotiate the Contract

Once you’ve chosen a provider, the next step is to negotiate the contract. This should detail the scope of services, timelines, costs, performance metrics, and penalties for non-performance. It’s also essential to clarify data ownership, confidentiality, and security measures. Consider involving legal counsel in this process to ensure that your interests are adequately protected.

6. Transition Management

A smooth transition to the new service provider is crucial for minimizing disruption to your business. This may involve transferring existing contracts to the new system, training your team on the new processes, and integrating the provider’s system with your existing business systems.

7. Monitor Performance

Once the service provider is on board, it’s essential to monitor their performance regularly. Are they meeting the agreed-upon metrics? Are they responsive to your needs? Is their system integrating well with your operations? Regular monitoring allows you to identify and address any issues promptly.

8. Maintain Communication

Maintaining open and regular communication with your service provider is vital for a successful partnership. This involves not just communicating your expectations and feedback but also listening to their suggestions and insights. Regular meetings or reports can help keep both parties aligned and responsive to each other’s needs.

Outsourcing sales contract management can bring significant benefits to your business, but the process requires careful planning and execution. By following this step-by-step guide, businesses can navigate the outsourcing process effectively, ensuring that they select a provider that aligns with their needs, establishes a successful partnership, and achieves their contract management objectives. Remember, successful outsourcing isn’t just about finding a service provider; it’s about building a partnership that drives business success.


ABOUT THE AUTHOR
Contract Sent

A contract management system built for startups to manage, negotiate and report on their SaaS contracts.

Contract Sent is not a law firm, this post and subsequent pages on this website do not constitute or contain legal advice. To understand whether or not the ideas and guidance on the Contract Sent website is applicable to your business, you should consult with a licensed attorney. The use and accessing of any resources contained within the Contract Sent site do not create an attorney-client relationship between the user and Contract Sent.

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