How to improve vendor management in 2025

As institutions increasingly rely on third-party vendors for goods and services, the ability to govern these relationships through well-managed contracts becomes essential. A strong vendor contract management process reduces ambiguity, supports compliance, and creates opportunities for long-term value creation. Companies that understand the importance of contract management can maximize the value derived from their vendor relationships. This guide explores how businesses can improve vendor management in 2025 and build long-term partnerships that drive success.

Why vendor contract management matters to your business

How organizations manage the procurement of goods and services varies widely. However, a vendor contract management system that centralizes documents and streamlines workflows can massively improve outcomes and allow for more profitable long-term third-party relationships. In contrast, a fragmented and inefficient one can have an opposite and detrimental effect.

Contract Lifecycle Management (CLM) software is a growingly popular platform for managing contracts for vendors and other agreements across a business’s entire enterprise. A comprehensive software system can offer the high-level Artificial Intelligence (AI) functionality necessary to manage vendor contracts more efficiently and securely with improved compliance and outcomes. It can also help reduce leakage in spending and drive revenue.

With the use of CLM software and the right vendor contract management plan, you can maximize the value of your relationships and minimize potential risks. Insights from CLM software are vital in enhancing vendor relationship management and refining your procurement strategy.

Common vendor management risks

Vendor relationships introduce a range of potential risks. Identifying and mitigating these threats proactively helps avoid operational disruptions and financial setbacks. 

Some of the most common vendor management risks include:

• Compliance and legal risks: Noncompliance with regulatory standards, contract terms, or data security requirements can lead to financial penalties or litigation.
• Performance risks: Vendor failure to meet contractually agreed standards or timelines results in operational disruptions and financial losses.
• Financial instability risks: A vendor’s poor financial health may jeopardize its ability to fulfill obligations, causing supply-chain disruptions.
• Cybersecurity and data privacy risks: Insufficient security measures by vendors may expose sensitive data, increasing the risk of breaches or unauthorized disclosures.

Best practices for effective vendor contract management in 2025

Effective vendor contract management is essential for any business looking to maintain strong relationships with suppliers while mitigating risks and optimizing procurement outcomes. Implementing best practices, such as establishing clear contract terms, fostering strong vendor relationships, and leveraging technology for automation, helps businesses optimize their processes and maintain compliance with regulatory standards.

Here are 12 key vendor contract management tips to help build a structured and forward-looking process:

1. Build your vendor contract management plan

Cementing a vendor procurement strategy that includes drafting and managing high-performing contracts helps you avoid compliance issues, missed deadlines, imprecise language, and compromised quality of goods and services.

CLM software allows you to analyze contract performance trends based on customized Key Performance Indicators (KPIs) and other metrics, providing insights into which agreements are most beneficial to your goals. It can also store multiple versions of a contract as it changes during negotiations, which parties can review later without losing anything in the process.

With a system in place to evaluate the company’s procurement demands before the need arises to start a new vendor relationship, your company can assess options and determine how they match up against past performance metrics.

2. Establish clear contract terms and conditions

Clarity in vendor contracts is essential for preventing misunderstandings and potential disputes. Contracts should explicitly detail the scope of work, deliverables, timelines, pricing structures, payment schedules, and performance expectations. It is also important to outline procedures for handling changes, amendments, and potential non-performance.

3. Leverage technology for automation

Managing vendor contracts manually introduces inefficiencies, inconsistencies, and unnecessary risk. Leveraging CLM platforms helps organizations centralize documentation, standardize terms, and streamline the entire lifecycle.

Tools integrated within CLM solutions offer real-time visibility into contract statuses, deadlines, and performance metrics, providing decision-makers with actionable insights. These platforms facilitate better collaboration across departments, ensuring all stakeholders have centralized access to essential contract information.

4. Utilize a centralized contract repository

A centralized contract repository is invaluable in efficient vendor relationship management. Storing all contracts in one place enables quick access, reduces the risk of lost or misplaced documents, and helps ensure compliance with renewal and termination dates. A centralized system also streamlines audits and simplifies the contract review process, making it easier to track the performance of multiple vendors at once.

5. Maintain a dialogue with vendors about priorities and expectations

While much back-and-forth goes into drafting and negotiating a vendor contract, it’s also crucial to continue a dialogue both with vendors and internally about company priorities and expectations. A key part of your vendor management best practices is evaluating a contract’s performance at the end of its lifecycle, when it is due for renewal, renegotiation, or termination. Regular performance reviews based on KPIs and contract analysis metrics will help you establish best practices for future contracts.

Good vendor management gives vendors the transparency they need to meet your expectations. The better a third-party vendor understands a business’s priorities and goals throughout the life of a contract, the more successful you’ll be in potential renegotiations and nurturing mutually beneficial relationships.

6. Implement regular performance reviews

Regular vendor performance reviews ensure vendors meet contractual obligations and deliver expected outcomes. These evaluations typically involve structured assessments of vendor performance against established KPIs and Service Level Agreements (SLAs). Documented results from these reviews provide objective data that can inform future negotiations, help identify performance issues, and guide corrective actions. 

7. Build lasting relationships with quality vendors

The ability to build a long-term beneficial relationship with your top-quality vendors will yield more success than creating a large turnover in suppliers for small, short-term cost savings. Building trust can lead to more reliable buy-side contracts and more lucrative renegotiations. Investing in quality relationships also enables businesses to create a more stable and productive supply chain. To foster strong vendor relationships, businesses can:

• Communicate regularly to address any concerns or performance issues promptly.
• Work together on solutions to overcome challenges or optimize service delivery.
• Recognize and reward excellent performance.

A contract management system allows a company to analyze its vendor contracts, track their performance from a centralized repository, and check broader trends among similar types of contracts. Identifying contracts that perform well makes it easier to know when it’s time to build a lasting relationship versus when it’s time to move on.

8. Ensure compliance with regulatory standards

Whether your business operates in healthcare, finance, manufacturing, or any other regulated sector, contracts must reflect the legal, operational, and ethical obligations relevant to your industry.

Maintaining compliance begins with embedding the right clauses into every agreement. This might include data privacy requirements, audit rights, service-level guarantees, or intellectual property protections. Staying compliant also requires ongoing monitoring.

Advanced CLM platforms ensure contracts adhere to industry regulations by incorporating standardized compliance clauses and tracking regulatory changes. With automated updates and built-in audit trails, businesses can monitor contract compliance and reduce legal risks. Security features such as encryption and role-based access also help safeguard sensitive data, enabling all vendor contracts to meet privacy and data protection regulations.

9. Consider cost versus commitment

It’s important to seek competitive bids, though a successful vendor relationship goes beyond negotiating contracts that cost less than those of other suppliers. Building long-term relationships where both parties are committed to supporting one another can lead to better outcomes and potential savings in renegotiations. Effective contract management means negotiating a contract whose terms leave both your company and your vendors happy, rather than drawing a hard line about one-sided expectations that only benefit your company.

During negotiations, CLM platforms allow all parties streamlined, secure digital access to a contract throughout each version, until everyone is satisfied with the scope, language, and terms of the agreement, such as price, timelines, milestones, deadlines, performance expectations, and responsibilities. This leads to better-performing and mutually beneficial contracts.

10. Seek vendors’ input on strategy

Although they are not your employees, suppliers are technically a part of your team — and a crucial component to your success. Your procurement professionals have sought out certain key vendors because they can provide a quality deliverable that impacts how your company produces revenue.

When analyzing KPIs and setting goals related to the products and services provided by third parties, their insights can be invaluable. It may also lead to discoveries of how to better optimize the terms and performance of vendor contracts in the future in ways that make your company more competitive.

11. Take an interest in your vendors

Vendors are operating a business just like the organizations they work with. They are more likely to value relationships with those interested in understanding their perspective. Discussing what vendors need to provide goods and services to you more effectively will lead to better outcomes than pushing for cost savings without understanding their operational needs. This added insight can help you set more precise performance benchmarks when negotiating the terms of a contract.

12. Negotiate a contract both parties are happy to sign

While you want to draft vendor contracts that deliver quality and increase profitability to your company, a successful negotiation leaves you and your suppliers happy. Trying to bully a supplier into a one-sided agreement may hurt your relationship with them in the long run or even cause you to lose their business altogether.

Procurement specialists should enter the negotiation phase with clearly defined objectives that include but extend beyond price, such as quality and service. CLM software gives your procurement team the tools to negotiate the best possible contracts that benefit your business and suppliers. Some important functions of CLM software include:

• Standardized contract templates and clause libraries to manage language across multiple contracts
• The ability to securely digitally sign documents by all parties
• Inter-departmental workflow automation tools that lead to shorter turnaround times, better negotiations, and fewer risk and noncompliance issues
• A customizable contract repository for quick access to individual contracts or clauses
• Customizable reports to help analyze performance in terms of quality, efficiency, timeliness, and cost savings
• Analysis of contract obligations and supplier performance

Advanced strategies for vendor contract management  

As vendor relationships grow more complex, organizations must look beyond foundational practices and adopt more advanced strategies to drive efficiency, reduce risk, and unlock hidden value.

Using data analytics for better decision-making

Data analytics empowers organizations to make informed decisions regarding vendor selection, performance monitoring, and negotiations. By analyzing historical contract data, businesses can identify patterns in vendor performance, pricing trends, and service reliability, guiding more effective procurement strategies. Analytics can also reveal opportunities for cost savings, risk reduction, and enhanced negotiation leverage by highlighting strengths and weaknesses within existing vendor relationships. 

Automating notifications and reporting

Contract milestones, renewal windows, and compliance checkpoints often go unnoticed without proper tracking. Automating these touchpoints using rule-based alerts and scheduled reports helps procurement and legal teams stay proactive.

For example, an automatic notification 90 days before contract expiry enables teams to renegotiate or terminate with time to spare. Similarly, organizations can schedule compliance check-ins or performance reviews automatically, reducing the risk of oversights and noncompliance.

Integrating contract management with existing systems

Seamless integration of vendor contract management systems with existing enterprise applications, such as Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and procurement platforms, dramatically increases efficiency. Integration allows contract-related data to flow effortlessly between departments, eliminating data silos and reducing manual entry errors. Unified systems also provide stakeholders with immediate, comprehensive insights across all vendor activities, facilitating better resource allocation and quicker decision-making processes. 

Unlock effective vendor contract management

By investing in an enterprise-level CLM system like Agiloft, your organization can ensure your vendor contracts are efficient, compliant, and secure, perform to optimized standards, and are managed in a streamlined and centralized system that significantly reduces costs.

Schedule your free demo today to explore how Agiloft can transform your approach to vendor contract management.