We know that contracts can be time-consuming and may feel like a pain point when they land on your desk, but you should understand that these documents are a lot more than just legalese that you need to get a deal done.
Well-drafted contracts are key tools that can help your business grow and reduce risks which could otherwise be crippling for you. So (rather than viewing your contracts as just administrative burdens), you should consider them key tools to streamline your operations, protect your business as you expand and support strategic growth. Optimising your contracts and contract management process can lead to substantial, tangible benefits, e.g. reducing your legal risk, improving your cash flow, and saving you costs and precious time in the long run.
Our commercial law team explores some key questions to help you understand how to optimise your contracts for risk prevention and business growth.
Growth and scaling up
Contracts are more than just legal documents—they are strategic tools that can drive business growth, foster trust, and mitigate risks while positioning your company for long-term success. Consider the following:
Leveraging contracts as strategic growth drivers
Your contracts should be well-drafted to mitigate foreseeable risks and adaptable to future changes so they can act as strategic tools for growth. They can help drive growth by setting clear expectations to avoid problems, keeping your business on track, and nurturing smooth working relationships. Contracts demonstrate professionalism, helping you win trust and secure opportunities with key parties such as your clients, suppliers, and investors. Clear roles and obligations in your contracts can reduce misunderstandings and risk mitigation clauses to help protect your interests and potentially save you from the headache of litigation (which can detract from your growth plans). As such, you should consider contracts a strategic growth tool you continue to review and update over time to get the most benefit from.
Essential terms for partnering with larger customers
When you’re structuring major customer contracts and negotiating with larger customers, your business needs to balance protecting its interests with the customer’s bargaining power and the commercial risks of the relevant deal. For example, have you worked with this customer for years, and can you trust them? If so, would onerous, lengthy contracts scupper the deal? Legal advice can help guide you on how best to secure a deal but give your business comfort that you’re legally protected. However, larger deals can come with bigger risks so remember key clauses around tight payment terms, legally enforceable liability caps and helpful dispute resolution mechanisms to protect yourself.
Streamlining supplier agreements with standardised practices
Standardising your supplier contract negotiations can give you a structured approach that ensures consistency and efficiency across all your supplier agreements. A procurement playbook is an effective tool for this by giving you knowledge and guidance through pre-approved templates, risk management strategies, and clear guidelines for negotiating key terms such as payment schedules, liability limits, and dispute resolution clauses. It can help you set clear negotiation parameters, streamline decision-making, and mitigate risks, allowing you to close supplier contracts faster and more confidently. Every supplier contract will have varying risks, but this can be a strong starting point.
Risk management
Effective risk management through contracts ensures your business maintains high standards while safeguarding against potential pitfalls.
Ensuring quality standards through clear contractual expectations
Contracts help establish clear expectations to keep things on track and lay out clear remedies if your suppliers do not meet your desired quality standards. To maintain high standards, it's vital you include clear performance and quality standards, e.g. spell out your expected specification or deliverables and any specific project milestones you need them to deliver. You can also seek to negotiate Service Level Agreements when necessary to define measurable standards for performance and specific remedies for underperformance. Periodic performance reviews and clearly enforceable audit rights can also give you ongoing oversight and protect against lapses in quality.
Key remedies to address poor performance and minimise risks
Your contracts can cover detailed remedies where things don’t go as planned. For instance - robust termination rights, service credits or liquidated damages where appropriate and negotiable. Additionally, specifying any required levels of insurance coverage and indemnity obligations can protect you against risks and liabilities arising from the contract.
Operations and finance
Efficient contract management is essential for optimising operations, securing cash flow, and adapting to business changes. Here’s how:
Boosting efficiency with effective contract lifecycle management
Solid contract lifecycle management (CLM) can help you ensure your business manages its contracts effectively from the point of initial negotiation right up to renewal. By taking steps (e.g. centralising your contracts, tracking deadlines, assigning responsibilities or using advanced CLM tools), you can reduce risks, streamline your operations, and improve performance monitoring. CLM is vital to protect your business from slipping up and missing key obligations, which could escalate into costly disputes. It can also promote business growth by enabling you to manage your contracts and get business done successfully.
Optimising payment terms to safeguard cash flow
Businesses are trading in shaky economic times, so maintaining cash flow, regardless of size, is critical. You must proactively review existing contracts to identify and mitigate risks, e.g., delayed payment. Unambiguous payment terms are vital for cash flow (including due dates, penalties for late payments, and your rights if a customer doesn’t pay up e.g. interest provisions to encourage prompt payment and a right to suspend the services until they pay up). You could include incentives like early payment discounts to encourage timely payments, too. For more advice tailored to smaller enterprises, consider exploring cash flow management tips for small businesses to strengthen your approach.
Managing contract changes effectively
You’ll need to proactively and correctly manage any contract variations. For instance, document contract changes with a clear audit trail and secure agreement from all necessary parties to avoid future disputes. It’s wise to seek legal advice to follow the correct process, as failing to comply with variation clauses can result in legal problems.
Conclusion
Founders and businesses often dismiss contracts as burdensome legal formalities. However, we challenge that perspective and urge you to see it as a cornerstone of your business’s success. Contracts become potent tools for driving growth, enhancing efficiency, and safeguarding your future. With strategic planning and precision, you can optimise your contracts to minimise risks and unlock new opportunities. Every business is unique, and contracts must be expertly tailored to align with your commercial landscape and mitigate potential legal challenges. Our commercial team is dedicated to ensuring your contracts work for you—building a foundation for resilience and long-term growth.
