Do you find yourself struggling to keep up with compliance requirements as your company grows and expands? We feel you!
Contracts are the backbone of any business, but let's face it; they can be a pain in the neck to manage, especially when you're dealing with a high volume. And when compliance requirements are added to the mix, things can get even more complicated.
In this post, we'll guide you through all the processes and best practices you need to ensure contract compliance.
What is contract compliance?
Contract compliance refers to the procedures and checks that businesses implement to ensure that they're following the rules and regulations laid out not only by the government but also their own policymakers.
Effective contract compliance is an essential part of contract management strategy, which aims to ensure that contracts are executed efficiently and effectively, from pre-signing to post-signing stages. Also, compliance requirements can come from various sources, including internal stakeholders and external regulations set by governments and industry leaders.
So, how do you measure whether your business is staying compliant? By assessing how well you're meeting the specific goals and checkpoints set out in your contract, you can ensure that you're complying with the agreement fully.
Easier said than done! There are a lot of challenges that you might come across while ensuring contract compliance.
The challenges in ensuring contract compliance
Ensuring contract compliance may be a crucial part of any business, but it's not without its challenges. Let's take a closer look at some of the common hurdles that can make the compliance process a headache.
- Multiple stakeholders: Contracts often involve several stakeholders, making it difficult to ensure that everyone is adhering to the terms and conditions of the agreement.
- Complexity of contracts: Contracts can be filled with legal jargon and technical terms that can be difficult to understand and implement.
- Keeping up with changes: Continuously monitoring contract compliance and adjusting to changes in regulations, policies, and industry standards is absolutely non-negotiable. While you may get updates about changing company policies, keeping yourself updated about the changes in corporate governance and regulations is no cakewalk.
- Limited time and resources: In-house legal teams are often stretched thin, and resources may be limited. This can make it challenging to devote the time and attention needed to ensure that contracts are compliant.
- Lack of communication: Without clear lines of communication, it can be difficult to ensure that everyone involved in the contract process is on the same page and working towards the same goal. This can lead to confusion and misunderstandings that can result in non-compliance.
- Managing vendors: Dealing with a large number of third-party vendor contracts can be a challenge, especially when you have to ensure that they are meeting their contractual obligations.
- Loss of version control: It's important to keep track of all versions of a contract and ensure that everyone involved is working from the latest version. If there are multiple versions of a contract floating around, it can be difficult to ensure compliance with the correct version.
However, despite the challenges, creating an effective contract compliance process is non-negotiable. Why? Because of the following reasons.
The importance of contract compliance
“While it doesn’t always get the love it deserves, a robust compliance function is an important part of risk-reduction at companies of any size. As such, in-house lawyers should get behind the creation of a compliance group if there isn’t one or enhance the existing one whether it sits in the legal department or not.”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Building a Strong Compliance Department
Effective contract compliance can save you time, money, and headaches down the line. By ensuring that you're meeting your contractual obligations and adhering to regulations, you're reducing the risk of costly legal disputes and protecting your business's reputation.
#1 Legal protection
Ensuring contract compliance means adhering to the terms and conditions of the contract, reducing the risk of legal disputes or breach of contract claims. This protects your business from costly legal battles and potential reputational damage.
#2 Financial protection
Non-compliance can lead to costly penalties, fines, or legal fees. Effective contract compliance can help you avoid these costs, saving you time and money down the line.
#3 Enhanced reputation
Commitment to compliance can enhance your reputation and position your organization as a trustworthy and reliable partner. This can lead to increased business opportunities and positive relationships with clients and vendors.
#4 Operational efficiency
Contract compliance can help reduce administrative burdens and improve workflow. By ensuring that everyone is on the same page and working towards the same goal, you can streamline your processes and operate more efficiently.
#5 Better vendor relationships
Effective contract compliance can help build trust and establish a positive working relationship based on mutual respect and understanding. This can lead to smoother negotiations and a stronger, more productive partnership.
So let’s see how you can implement an effective contract compliance process in your organization.
9 Best practices to ensure contract compliance
Here are some best practices that can help you stay on top of your contracts and reduce the risk of non-compliance:
#1 Build standard templates for different types of contracts to reduce errors
Develop standardized contract templates for common agreements such as NDAs, vendor contracts, and employment contracts. This ensures consistency in language and terms and reduces the risk of errors or omissions.
#2 Stick to a robust contract approval process to reduce risk
Implement a clear and structured contract approval process. This process should include specific criteria that must be met before a contract can be approved, such as financial review, legal review, and vendor approval.
Also read: The Perfect Contract Review Checklist
#3 Establish clear roles and responsibilities to avoid confusion
Clearly defining who is responsible for what can help avoid confusion and ensure that everyone knows what is expected of them.
Ensure that everyone involved in the contract management process understands their role and responsibilities. This includes not just the legal team, but also other departments such as procurement, finance, and sales.
Consider creating a contract management committee with representatives from each department to ensure that all parties are on the same page.
#4 Create a centralized repository for contract documents for easy access
Store all contracts and related documents in a central repository. This can be in the form of a document management system or a cloud-based platform. This ensures that all documents are easily accessible and searchable, and reduces the risk of lost or misplaced contracts.
#5 Track important dates and deadlines to meet obligations
Many contracts include specific deadlines for payment, delivery, and other actions. To ensure compliance, it's important to track these dates and ensure that all parties are meeting their obligations. For example, if your company has a contract with a vendor to provide services, you must track deadlines for submitting invoices and making payments. You can use this free MS Excel spreadsheet to track these important milestones.
#6 Maintain a document with the latest changes in laws & regulations
Keep a document or database with the latest changes in laws and regulations relevant to your industry. This ensures that your contracts remain compliant with current standards and reduces the risk of non-compliance.
You can use legal research tools and online databases like Westlaw/LexisNexis/Manupatra (for India) to stay up-to-date with legal developments.
Also, consider joining industry associations and networks to stay informed about new legal developments and best practices in your industry, and don’t forget to attend conferences, seminars, and webinars relevant to your business area.
#7 Conduct regular audits and reviews to identify areas for improvement
Regularly review and audit your contracts to ensure compliance. This can include checking for proper documentation, adherence to contract terms, and vendor performance. Use these reviews to identify areas for improvement in your contract management process.
#8 Monitor vendor performance to ensure compliance to obligations
It's important to ensure that vendors are meeting their contractual obligations and adhering to regulations. You need to monitor performance metrics, conduct site visits, or request documentation to verify compliance. For example, if your company has a contract with a vendor to provide services, you may need to monitor the quality of the services provided and ensure that the vendor is complying with any applicable regulations or policies.
#9 Document and report compliance to maintain a clear paper trail
To ensure that you have a record of compliance, it's important to document all relevant information and maintain a clear paper trail. Store detailed records of vendor communications, performance metrics, and compliance documents somewhere safe and easily accessible, like some CLM software especially designed to maintain your respository.
In addition, you'll want to report on compliance to key stakeholders, such as management or external auditors. For example, if your company has a contract with a vendor to provide services, you may need to document the services provided, monitor contract compliance with applicable regulations, and report vendor performance to management or external auditors.
How do contract management tools make contract compliance seamless?
The ideal way to maintain contract compliance is by automating your contract management process with the help of robust CLM software, such as SpotDraft. With its cutting-edge features, SpotDraft simplifies the contract management process, saving you time and reducing the risk of costly errors.
“SpotDraft is helping solve the entire workflow management relating to legal contracts. From the draft stage to enabling multiple teams working on it to sending it to external parties for signature and finally storage/retrieval of the contracts.”
Here are some of the features that make SpotDraft stand out:
#1 Intelligent contract templates
SpotDraft offers a range of customizable templates that can be tailored to your specific needs. You can create templates for different types of contracts, such as NDAs or vendor agreements, and then use them to streamline the contract creation process.
#2 Automated approval workflows
You can set up automated workflows that ensure all contracts are reviewed and approved by the appropriate stakeholders. This helps to reduce the risk of non-compliance and ensures that everyone is on the same page.
#3 Centralized repository
All of your contracts are stored in a centralized repository, making it easy to track important dates and deadlines. You can also access your contracts from anywhere, at any time, and collaborate with other team members in real-time.
#4 AI-powered contract review
SpotDraft uses AI to analyze your contracts and flag any potential issues or areas of concern. This helps to ensure that your contracts are compliant with regulations and adhere to best practices.
#5 Real-time analytics
With SpotDraft's analytics dashboard, you can track the performance of your contracts in real-time. This helps you to identify any areas for improvement and make data-driven decisions that drive better business outcomes.
Gguardrails act as reminders for key terms and clauses in contracts that require special attention, such as non-compete clauses or termination clauses. This feature ensures that all contracts are reviewed and approved by the relevant stakeholders before they are executed, minimizing the risk of non-compliance.
Want to see what it feels like to have SpotDraft ease your contract management process while ensuring and monitoring contract compliance? Request a live demo!