5 ways contract obligation management changes the game

Signing a contract is a big deal. It can take weeks or months of negotiations, multiple back-and-forth cycles of redlining, and, often, sign-off from a broad array of colleagues and counterparties. Once the work is done, you have a well-crafted, clear outline of everything each party has committed to doing, and a roadmap for how to operate both when things are going well and when things go awry.  

Actually tracking those commitments and ensuring everyone gets what they expected, however, can be tricky. 

What is obligation management?

Through obligation management, you ensure all parties in a contract meet their responsibilities and respond to any shortfalls according to the guidelines codified in the signed agreement. 

Key obligations for a contract might include:  

• Delivery of promised goods and services 
• Payment rendered for goods and services received 
• Application of volume discounts as they are earned 
• Application of credits for shortfalls, late delivery, or service disruption  
• Negotiating the renewal or cancellation of the contract within a pre-agreed time frame 

Why is obligation management important?

While a contract defines the agreed-upon details of a business relationship, it can’t guarantee all parties will align with the agreement. If counterparties do not adjust operations as needed, they will miss their obligations. For instance, if a supplier is supposed to offer volume discounts, they need to confirm when ordering thresholds are reached and that bills are actually lower. 

When businesses use a contract obligation management platform to ensure all parties meet the details of an agreement, they can:

• Mitigate risk of legal disputes, damage to reputations, and disruption of operations.
• Develop strong business partnerships by establishing trust and satisfaction with the business arrangement.
• Enhance a business’ ability to achieve their goals and satisfy customers.

How to manage contract obligations​

There are a few key steps in contract obligation management:

• Understand responsibilities: Obligation management begins with identifying the terms of an agreement that your business or the other party needs to meet. Maintain contract visibility so everyone can remind themselves of deadlines and expectations as needed.
• Track compliance: Monitor progress toward reaching contract goals through contract obligation management technology. Customizable workflows allow you to easily adjust the platform to your operations, making it simpler to confirm compliance.
• Review agreements: Keep up with the contract, from renewal dates to potential negotiation points. Use obligation management platform features like real-time dashboards to easily review data.

5 ways strong obligation management changes the game

When you improve how you manage contract obligations, you can improve your relationships with other businesses.

1. Avoid auto-renewals

These days, a stunning percentage of contracts are designed to renew if not actively cancelled. These recurring contracts define a period within which the buyer must either re-negotiate or cancel if they do not wish to renew the contract at the supplier’s proposed rate. 

At Agiloft, we hear all the time from organizations that realize they have missed the re-negotiation period and are now stuck with another year — or more! — of a product or service that they no longer require. When the renegotiation date is properly surfaced on all contracts and entered into an automated notification flow, you will not end up with “zombie contracts” that continue for no better reason than that someone forgot to cancel them. 

2. Never miss a discount

Discounts may be triggered by all sorts of things, from reaching volume thresholds to service disruptions. One thing that tends to be consistent all the way across the board is that these discounts need to be claimed. 

Elevating the profile of all discount possibilities and connecting them to operational systems like Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) can mean the difference between knowing it’s time to claim a discount or rebate or not. Contracts that specify compensation for high volumes, exceeded quality levels, or unanticipated disruptions can be exceptionally valuable — so long as the details are folded into operational execution. 

3. Manage compliance risk

Contracts between organizations entail the risk that the deal won’t work out and the risk that the deal will steer both entities into breaking regulations. When a manufacturer, for instance, purchases production capacity from another entity, a failure to meet labor practices can impact both organizations. 

Obligation management ensures both that appropriate commitments are included in all contracts so regulatory compliance is promised and that the failure of one party to meet its commitments is a clear reason for the other to cancel the agreement. 

4. Build unbreakable business bonds

When a company expects its supplier to deliver goods every Monday but only receives shipments every 10 days or so, it’s inevitable that friction will threaten the long-term relationship. When both sides are carefully managing their obligations, however, the problem can be identified and addressed before it becomes a crisis. By staying on top of the agreement, partners can develop mutually beneficial, open, and collaborative relationships that thrive over the long term. 

5. Drive meaningful efficiencies

With a data-first, automated approach to obligation management, companies can relieve their administrative teams of low-value manual work. They can shift to a proactive approach, deriving full value from each and every contract they sign. Processes that surface key events during the lifetime of the contract automatically ensure maximum value from each agreement while minimizing human resource costs. 

How to optimize your obligation management

The foundational element to obligation management is a data-first Contract Lifecycle Management (CLM) solution. That means a CLM platform that prioritizes data (the specific details of an agreement) over documents (the agreement in its entirety) so the contracting team can easily and seamlessly build processes that surface eventualities that call for intervention, whether it’s to claim a discount, negotiate a renewal, or acknowledge and fix a failed promise. 

Transform how your business manages contracts with Agiloft

With strong obligation management, businesses can transform their contractual processes from a potential liability into a strategic advantage. Agiloft’s data-driven platform enables you to manage contract obligations and improve contract performance.​

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