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Effective contract management is essential for ensuring business success if you are a business supplier. Robust contract management will enable you to fulfil your obligations reliably and mitigate risks effectively. However, poor contract management can have the opposite effect and result in various problems, from financial setbacks to disputes. This article will explore how poor contract management can result in disputes.
Why is Effective Contract Management Important for Your Business?
Contract management is critical for effectively overseeing your contractual commitments and safeguarding your business against potential risks.
You can secure a range of benefits by adopting efficient contract management strategies. For instance:
- efficient and smooth contract execution, saving time and costs;
- customer satisfaction and loyalty if you can use contract management to exceed customer expectations; and
- safeguarding against potential legal risks, such as court claims against your business for breaching your contractual obligations.
However, failing to implement an effective contract management system can result in risk for your business. We will explore this further below.
How Can Poor Contract Management Result in Disputes?
In several ways, poor contract management can result in customer complaints and, in the worst case, legal disputes.
Let us explore some key examples of how poor contract management can result in disputes.
1. Unclear Contract Terms Can Lead to Mismatched Expectations and Disputes
Contracts containing poor drafting or lack of clarity can result in mismatched expectations. For instance, you and your customer could disagree about what specific contract terms mean and interpret your obligations differently.
If your contracts do not specify in sufficient detail what you have agreed to deliver, your customers could have different expectations from you. As such, this could lead to confusion and complaints. In the worst case, unclear contract terms can lead to customer disputes.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
This could also lead to non-payment disputes. For instance, if your terms are unclear about payment dates or the costs of your services. A customer could dispute your invoice and fail to pay, leading to significant cash flow issues for your business. Such problems could also escalate into stressful payment disputes with your customers.
2. Poor Contract Management Can Lead to Breaches of Key Obligations and Disputes
You need to manage your contracts correctly to avoid breaching your customer obligations. For instance, failing to understand or remember your contract terms could lead to your business missing critical deadlines or time frames the customer requested. This could result in contract disputes.
As such, it is vital to understand your contract commitments to customers, keep track of critical dates and specific requirements and ensure you comply with your obligations. Making summary notes of key contract dates and deliverables can help achieve this.
3. Not Keeping Clear Records Can Lead to Disputes
Correct documentation is vital in contract management. Failure to maintain accurate records of contracts, communications, changes, or verbal agreements can lead to disputes. For instance, you may need to remember a key deliverable your customer requested on the phone, which you verbally agreed to deliver, meaning you have breached your contract with them.
4. Failing to Communicate and Update Customers Can Lead to Disputes
While delays are inevitable, occasionally, poor communication can lead to customer problems that could escalate into disputes. For instance, if a customer needs services delivered by a target end date and your business can no longer meet these dates. By communicating with your customers openly, you can reach a resolution the customer is happy with.
However, the absence of effective communication or a system to update the customer on progress and delays can result in disputes. You should use effective communication methods to keep your customers informed and constructively address problems to avoid the risk of conflicts arising. For instance, by allocating a dedicated customer manager to manage the project, report to the customer and resolve any issues around delays or other problems.
In summary, poor contract management increases the chance of legal disputes due to increased scope for misunderstandings and non-compliance with contract terms. Disputes that result from poor contract management can significantly harm your business. You may face:
- heavy legal costs;
- bad publicity; and
- the loss of customer business.
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Key Takeaways
As a business supplier, it is crucial to implement robust contract management strategies to maintain the credibility of your business. Failing to address contract management adequately can give rise to complaints and disputes, potentially leading to costly legal battles, damaged relationships, and damage to your reputation. As such, thorough attention to contract management can be a critical safeguard to prevent disputes and instability in customer business dealings.
If you need advice on implementing contract management processes to avoid disputes, our experienced commercial lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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