What is a vendor contract or vendor agreement?
A vendor contract (or vendor agreement) is a business contract that sets out the terms and conditions of a purchase, and is an important touchpoint between the buyer and the seller. For the vendor or supplier, the contract helps to recognize revenue. For the buyer, it’s about keeping track of spend.
What is vendor contract management?
This is the process of creating, negotiating, agreeing, storing and tracking vendor contracts, to enable legal, procurement and finance teams to manage risk and renewals.
Typically if a business doesn’t have an established procurement team (because, for example, it’s a high-growth scaleup in the early stages), the legal team will take ownership of these agreements. Vendor contract management is about creating a robust and standardized process, from end to end, to help manage four Rs:
- Risk: what liabilities is the company exposed to as a result of its vendor contracts?
- Revenue: how do these documents influence revenue recognition?
- Renewals: when are these contracts due to renew and how do we make those decisions?
- Relationships: how healthy is the vendor-buyer relationship, and what should we do to improve it?
The vendor contract management process
Companies working to simplify their vendor agreement process usually experience pain in both pre-signature and post-signature stages:
- Pre-signature, clunky, manual contract processes mean that teams working on vendor agreements have to jump between several tools: editing in Microsoft Word, negotiating with the counterparty over email, discussing with colleagues in Slack, reviewing tracked changes, converting to PDF, signing via electronic signature, and finally saving fully signed contracts in shared drives.
- Post-signature, filing and managing these contracts is a time-consuming process. Without contract automation, vendor agreements are often saved as PDFs – or worse, printed and shoved into the back of a filing cabinet. PDFs are difficult to search, making it hard to keep sight of important terms, renewals dates and other critical information.
For this reason, companies looking to simplify vendor agreements often look to create them as digital contracts in a contract automation platform.
In creating this process, it’s incumbent on legal teams and their business colleagues to make sure contracts:
- Pass quickly through the relevant stages of the lifecycle;
- Reach the right people at the right time;
- Make their data accessible to anyone who needs it; and
- Allow their risks to be surfaced easily.
To make this happen, forward-looking legal teams will often adopt contract automation through a digital contracting platform. The process should look like this:
The key phases are:
- Create - generate contracts from automated templates controlled by legal
- Collaborate - stakeholders make suggestions and amends to contracts internally
- Approve - the legal teams signs off on the agreed terms
- Negotiate - parties to the contract make suggestions and redlines until both sides are happy
- Sign - parties use secure electronic signature to agree the contract
- Track - the legal team can store and search through contracts post-signature to surface important information and dates
- Renew - automated renewal reminders let contract owners know when the vendor contract is up for renewal
Contracts can be exited at this point if there's no intention to renew them.
Using this kind of workflow, in a browser-based contracting platform, helps teams to collaborate on vendor contracts quickly and efficiently.
How to create vendor contracts
Some of the most successful or fast-growing companies accelerate revenue by improving how they engage with buyers, so it's important to bear in mind the experience a users has with a vendor contract. A poor experience can be offputting, slowing down or even blocking signing completely.
As the value of these relationships increase, so too can the length, density and complexity of the vendor agreements used to define them, both in terms of content and process. This introduces friction, which can have serious consequences – especially in the case of venture-backed scaleups with aggressive growth targets.
The legal team (or whoever ultimately ‘owns’ the contract) creates the vendor agremeement template in your contract automation platform’s editor, defining the standard terms for colleagues to use in their agreements.
Business users can then answer a short Q&A to populate the key fields and generate a vendor contract of their own. To optimize for a fast signature, it’s important to make sure the terms reflect your best version of the contract - if the language is always negotiated, the delays this creates will frustrate the efficiency gains of automating the template in the first place.
Here are three tips to make your vendor contracts look inviting:
- Brand it. Charts, tables and images can make your contract more engaging. Include the logos of both companies at the top of the document to help visualize your commercial relationship and make the contract process more human.
- Foreground key terms. There’s no point hiding important terms in jargon-heavy clauses – this only alienates the counterparty and guarantees a poor user experience. Instead, identify the most important terms in your vendor agreements and put them front and centre to close the deal faster.
Vendor agreements can be created effortlessly in Juro in seconds. Want to try it for yourself? Hit the button below.