Contract Management: Everything You Need To Know

The contracting process includes more than just drafting legal documents and signing them. Since the agreement specifies the terms of a business connection, they are applicable for as long as the partnership lasts. Also, the organization must stay on top of the contractual agreement to get the most out of them.  

The traditional method of executing contracts and storing them in a locker does not offer companies many opportunities. It is unrealistic to expect the legal department to track every contract milestone manually. Businesses are bound to lose out on some crucial information if they rely only on the labor pool. Automated contract management is the way to go if you want contracts to keep up with your evolving business. Moreover, effective contract lifecycle management can transform your digital contracts into a boon. Below is an in-depth overview of contract management and its best practices.   

What is contract management? 

Contract management is the process of managing legal agreements throughout their lifecycle. The primary tasks include contract authoring, negotiation, execution, renewal, and termination. The contract managers keep an eye on the pertinent detail of all the phases of the contract lifecycle to boost efficiency and productivity.  

Thanks to technology, businesses have contract management software to take care of the entire contract lifecycle from a single platform. They can automate the processes to get the tasks done in half time. Contract management solutions offer dashboards and workflows customizable to suit business needs and challenges. Moreover, you can do without human error and risks. It bodes well for the financial and reputational status of the company.  

How does contract management work? 

Automating the contract management process with software means you can draft, share, collaborate, execute, and manage legal documents from one central location. Organizations can save all contract-related documents in a digital repository using contract management software. Instead of going through hundreds of files, contract managers can utilize OCR (Optical Character Recognition) and AI to find relevant information in seconds. There are certainly more perks to CMS (Contract Management Software), but for now, here is how you can handle the contract lifecycle through the contract management process. 

• Pre-signature 

The pre-signature stage of contract management starts with a contract request. During this part, the organization identifies the need for a contractual agreement to outline the terms of a business partnership. Next, the legal team drafts the contract using pre-approved templates and a clause library offered by the contract management software. 

Then all the invested parties go through the draft to agree upon a mutually beneficial agreement. Contract lifecycle management software offers contract redlining for a seamless negotiation process. Then the finalized document goes through the automated approval workflow to get clearance from the relevant approvers. Finally, the approved contractual agreement is signed by stakeholders within contract management software using e-signature solutions. The contract management process takes off after a contract is signed and sealed. 

• Obligations & Milestones 

Companies have thousands of active contracts at a time. And they need to keep track of the significant milestones in a contract lifecycle. Contract management software offers automated reminders to stay on top of reviews, renewals, and expiry dates. The legal team can also set up an automated tracking function to stay abreast of critical obligations in the contractual agreement.   

• Vendor & Customer Relationship 

Contract management plays a critical role in maintaining the relationship between a business and its partners. Companies can use CMS to ensure that both parties strictly abide by all the terms and conditions stated in the contract. The invoice and obligation tracking function help to maintain transparency and trust. Contract management also encourages continuous communication between businesses and their vendors or customers.  

• Ongoing Evaluation 

Constant assessment of contractual agreements is necessary to ensure contract performance and compliance. Contract lifecycle management helps organizations identify and monitor KPIs (Key Performance Indicators) to ascertain they are getting maximum value from the contracts. Recognizing ineffective aspects of the contract lifecycle enables businesses to take the necessary precautions to reduce risks.  

• Contract Amendments 

Contractual agreements are bound to have alterations as the business partnership progresses. Manually keeping track of all the changes throughout the contract lifecycle is challenging. Contract management provides the means to stay on top of contract versions. Businesses can access real-time document status updates to stay abreast of contract amendments. Consequently, all the invested parties have access to accurate information at all times.  

Why is contract management essential? 

Competent contracts are the backbone of business relationships. Then it comes as no surprise that an organization requires an efficient contract management system to oversee their contractual agreements. They must manage contracts throughout their lifecycle to establish compliance, performance, and vital milestones.  

• Eliminate unnecessary losses 

Organizations can automate the processes of contract development, negotiation, and execution with contract management software. Also, they can set up automated reminders for reviews and expiry. As a result, there aren't any unnecessary delays or mistakes in the contracting process that result in losses. 

• Increase returns 

Contract management accelerates the entire contract lifecycle. Therefore, there is little chance that businesses would lose customers or suppliers due to lengthy procedures. Moreover, it empowers the sales team to close more deals in less time. And the companies can benefit from higher sales and profits. Contract management also enables organizations to identify opportunities to improve and expand their businesses.    

• Improve risk management 

Companies cannot operate without contracting, which is a repetitious and error-prone process. A single ineffective contract can lead to financial, legal, and reputational damage. Contract management offers a complete overview of the contract lifecycle to establish and mitigate contract risks before they cause trouble for the company.  

• Increase productivity 

Automated contracting processes mean the legal department does not have to spend endless hours on low-value, repetitive tasks. Organizations can even utilize bulk actions to generate, share, edit, and approve contracts in large numbers. Thus, contract management improves the efficiency and productivity of the legal department. It also frees up the legal to focus on other crucial tasks.  

What are the best practices for contract management?  

Contract management offers a wealth of opportunities for organizations to maximize the value of their contracts. Contract management software will be a burden rather than assistance without proper planning and implementation. There are specific actions that every enterprise should take to optimize its contract lifecycle management, regardless of the type and scale of its operations.  

• Standardize contract creation 

Most organizations do not have the time or personnel to create contracts from scratch. One way to do this without turning the proverbial wheel is to standardize the contract creation process. The legal team can employ templates and clause libraries to generate compliant legal documents.  And businesses can establish consistent language and clauses for contractual agreements. Consequently, the legal division does not have to deal with hundreds of versions of the same contract. 

• Monitor Contract KPIs 

Setting up performance indicators enables organizations to evaluate the effectiveness of their contracts. Contract management allows the legal team to determine specific, measurable goals and assess success. Businesses can choose metrics relating to their needs and challenges with customizable dashboards. Moreover, monitoring KPIs will help the legal team to find ineffective processes in the contract lifecycle and improve them. 

• Compliance check 

Having a systematic contract management process empowers organizations to conduct regular compliance audits.  Consistent monitoring of legal and financial pitfalls will help your company to avoid unnecessary risks. Thus, organizations can take the necessary actions to remain compliant. Apart from contractual terms and stipulations, the legal team also should track external regulations. It helps to protect your business from legal transgressions and financial penalties. Eventually, constant compliance checks can perpetuate solid business relationships. 

• User access  

Contract management offers a single safe location to store all their contract-related documents. Consequently, the contract managers will not have to spend endless hours searching for necessary information or contracts. Contract management software comes with OCR and AI capabilities making any digitized data easily accessible and searchable.  

Moreover, CMS also enables businesses to set user permissions for dashboards, widgets, and workflows. Thus, you can prevent leakage and security flaws by limiting access to critical information to the appropriate employees. 

• Utilize integration 

Implementing advanced integrations with your contract management software can go a long way to improving your contracting process. Organizations can utilize e-signature solutions to execute contracts within the CLM (Contract Lifecycle Management) solution.  Businesses can also integrate Salesforce or Dynamics CRM (Customer Relationship Management) solutions with contract management software to empower the sales team to self-serve sales agreements. Utilizing every technology available is the only way companies can keep up with expanding contract portfolios.  

Bottom line  

Every organization comes with its own set of possibilities and challenges. Achieving business goals, in the end, depends upon the tools you have in your arsenal and your ability to use them. Contract management can assist the legal team in optimizing the contract lifecycle and clearing any glitches. In the long run, efficient contract lifecycle management can translate to better returns and partnerships. 

Schedule a live demo to witness the contract management software in action.