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Contract termination – a simple approach

Contract termination involves a contract party ending a contract before its obligations are fully completed by both parties.  The cancellation of a contract should involve crucial financial analysis, contract performance data analytics and the creation of a notice of termination.  Most organisations need a strategy to identify contracts that are not meeting contract KPIs, to write notices of contract termination and to ensure proper contract closeout.  This article will show you how to easily implement this strategy.

A comprehensive contract termination process

Organisations need tools to identify under-performing contracts, to develop a contract writing process with contract templates and a dynamic clause library, and to ensure proper contract closeout with budget and invoice payment and tracking.  Here’s our three-step guide for streamlined contract termination with a leading contract management solution.

Step 1: Identify contracts that fail to meet your performance goals

With contract management software, your users can identify contracts that fail to meet contract KPIs with several intelligent software tools, streamlining the contract termination process.

KPI visualisation tools

For starters, utilities designed to compare contract performance data against previous years give you good analytical insight.  Contract performance data solutions offer visually engaging tools for these purposes. For example, an executive graphical dashboard focused on contract KPIs could present contract performance compared to the previous year.  You could compare contract and budget amounts for the current year against those of last year, back up with a graphical display.  And the total number of contracts within your system, the number of open contract tasks to be performed, the number of contracts pending, and contracts set to expire within the next 30 days could all be prominently displayed. 

Tracking missed payments and deliverables

It’s easy to miss payment and delivery milestones.  This process can be streamlined with a robust contract management solution that allows you to configure automated workflow updates for software users if payments and deliverables fail to be met by their set date. It will help you decide if contract termination is the best option.

Additionally, advanced contract management software allows users to track risk involved in a contract.  For example, if you’re not receiving payment on time according to a contract’s terms and conditions, you can determine risk for future contracts by tracking that contract’s lifecycle process to determine how many payments were missed and how many deliverables weren’t performed on time as well as where things went wrong.  From there, you can leverage risk assessment rating tools to track insight into revenue loss exposure, reputation exposure, confidentiality exposure and more.  A risk assessment matrix is provided based upon the information entered, which displays the information at a glance. And you can make notes and comments to keep all risk insights in one place.

Step 2: Dynamically write a contract termination letter

You can use the termination templates located within the template library in your contract management system, using contract data field placeholders and a dynamic clause library to pull key information and clauses (such as those detailing early termination fees) into a contract termination letter when you need to.  You can also send a contract termination letter within a software system or to external users as a templated email.  So you don’t need to waste time meeting contractual obligations that may cost you money, hurt your reputation and distract you from more beneficial contracts.

Step 3: Ensure proper contract closeout with financials tracking

At contract termination, contract management software helps businesses like yours facilitate proper contract closeout while gaining valuable insights to support the health of future contracts.  You can leverage the contract management software’s financial tracking tools to help you effectively manage spend and stay within your budget limit before contract closeout as to avoid penalties.  Additionally, you can determine the contract’s remaining budget after contract reversal.

Financial tracking tools can also be used for tracking transaction history.  You can track how many credits were incurred, how many debits expensed and view a contract’s budget amount against the incurred amount, the budget balance remaining and the percentage of the budget used.

With advanced contract management software, these financials can be exported to a spreadsheet format for future analysis and calculation.  Or you can bulk import financials using a structured spreadsheet file as well, using contract management software to simplify the analysis.

Simplify contract termination

Things don’t always work out as planned.  This truth applies to contracts as well.  Perhaps you’re dissatisfied with the way contract obligations are being met (or are not being met).  Maybe you no longer need the products or services of a counterparty.  In any case, a notice of contract cancellation makes it very clear to everyone involved that a contract has been ended.  Now that you’ve discovered how to perform comprehensive contract termination with the help of contract management software to save time and money, it’s time to enlist the help of Contract Insight for full contract lifecycle management.

Contract Insight can not only help you to identify under-performing contracts, but it can also help your organisation to reduce contract terminations in the first place by ensuring better contract management.  Certain things may be out of your control (such as force majeure events).  However, with streamlined, efficient, intelligent web-based contract management software, that enables your organisation to reduce contract lifecycle bottlenecks, analyse, avoid and mitigate risk, saving you time and money, you can be more confident that you’re making smart decisions that lead to contract management success.

Contract Insight from Four

Contract Insight is a cloud-hosted (SaaS) or deployed (on-premise) contract management solution.  The acclaimed platform is trusted by thousands of professionals for their contract management, legal document management, procurement and sourcing needs.  Used by many Fortune 500 companies, Contract Insight gives you real time visibility into your contracts. It doesn’t just shore up your security; it will help you meet contract compliance regulations, centralise your contract management and improve your overall contract administration process.

For more information, contact John O’Brien, CEO at Four Business Solutions, global business consultants and software integrators providing business processes improvements in Finance, Supply Chain & Operations, across a broad range of industries.