Although most companies would list land, buildings, intellectual property, and access to finances as the most valuable things they hold, information and records are actually one of their most vital assets. Recorded information is a critical component of conducting business transactions and essential to informing decisions, proving compliance, and avoiding penalties. Simply put, inadequate record-keeping is a risk to your organization.
Risks Associated with Inadequate Record-Keeping Practices
Record-keeping is an essential part of contractor management. The contract itself is the first and most important part of these records. Additions, deletions, or revisions to the contract must be promptly recorded with due respect to process and policy rather than making a quick sale or transaction.
Moreover, without proper management, agreements are “filed away,” and contractor relationships often extend well beyond their term or simply roll-over because termination deadlines were missed. This negates any advantage that might be offered by the renewal process.
Mismanaged and misplaced records lead a host of other issues, including the following.
1. Missed Deadlines and Loss of Competitive Edge
Contractors may charge more for their products or services because contracts were not renewed as scheduled at the current market value.
2. Harm to Corporate Reputation
Latent project defects can happen years after a project is completed. The reputation of your company is at risk when contractor records are lost or difficult to find. This can damage your company’s reputation and put your firm at a competitive disadvantage.
3. Loss of Corporate History and Knowledge
Companies that have inadequate record-keeping practices often rely on the knowledge of key personnel when it comes to contractor management. When there is staff turnover, that corporate knowledge is lost.
4. Worker and Workflow Inefficiencies
Without adequate record-keeping, your workers will spend too much time looking for contractor agreements and associated records.
5. Poor Response Time
When unexpected events occur, like new regulations, bankruptcies, business mergers, natural disasters, or emergencies, it is crucial to have quick access to all contractor records.
6. Mishandling of Information Due to Insufficient Controls
Companies that do not have adequate controls on record-keeping inadvertently facilitate the mishandling of information by employees. In the worst-case scenario, employees may leak valuable information like pricing or sensitive employee data to competitors.
7. Lack of Regulatory Compliance
Poor management of contractor records can lead to missed updates and deadlines associated with regulations, as well as overlooked contractual obligations.
8. Inadequate Cash Flow
Poorly managed contractor records can lead to missed contractual obligations and payment due dates. Contractor overpayment can also occur if proper records are not maintained.
Poor Record-Keeping Also Puts the Contractor at Risk
Proper record-keeping is a necessity for any company hiring contractors, but it is equally essential for the contractor themselves. Poor record-keeping and poor contract management is a risk to their business. Sometimes, contractors who are looking for new projects overlook contract details to secure the work quickly.
(Learn more about Contractor Management Best Practices.)
Although every project has a certain level of uncertainty, here are some of the most common risks that contractors can avoid through better record-keeping.
1. Ineffective Billing Practices
Poor record-keeping leads to missed billing milestones and cash flow issues. Late billing will inevitably lead to late payments and are more prone to be disputed by clients.
2. Loss of Inventory
Tools and equipment misplaced or stolen from the job site are a business liability. Keeping a proper inventory of equipment is critical to avoiding delays, reducing costs of operation, and minimizing future expenses.
3. Safety and Regulatory Issues
It is the contractor's responsibility to be compliant with all pertinent regulations. Ensuring compliance requires due diligence and ongoing record maintenance.
Poor attention to safety regulations could lead to more accidents, increased investigations, higher insurance premiums, and loss of both clients and reputation. Lawsuits can arise when your company is unable to produce documents during litigation or when requested by government agencies.
|Free Download: A Guide to Qualifying Contractors: Risks and Best Practices|
4. Late Projects
Attention to project schedules is an integral part of contractor record-keeping. Projects that are finished late often involve financial penalties, or additional expenses related to paying workers and managers for a more extended period. Keeping a daily record of work completed will help your company stay on track and be aware of any potential delays well in advance.
Good record-keeping is founded on the preparation and maintenance of reliable and accurate documents that provide evidence of every business transaction. Your document retention policy and procedures should be designed to meet all legal and regulatory storage requirements and based on a variety of factors, including privacy laws, risk tolerance, the potential for dispute, and your own access needs.