What is Contract Management?

Contracts are the foundation of commerce. But managing those agreements – from initial negotiation to final fulfillment – can be a complex and time-consuming process. That's where contract management comes in.

Contract Management Defined

Contract management is the process of managing legally-binding contracts from their creation through to execution and analysis to maximize operational and financial performance while minimizing risk. It involves a series of management activities to ensure that all parties fulfill their contractual obligations and that the terms of the contract are adhered to. Activities include:

1. Drafting and negotiation: 

Crafting the initial terms and conditions of the agreement.

2. Execution: 

Formalizing the agreement with signatures from all parties.

3. Performance monitoring: 

Ensuring all parties adhere to the agreed-upon terms.

4. Amendment: 

Making adjustments to the contract if necessary, or as circumstances evolve.

5. Renewal or termination: 

Bringing the contract to a close upon completion or expiration.

Essentially, it's the practice of ensuring all sides get what they agreed to from the deal.

The Problem with Traditional Contract Management

For many enterprises, the contract management process continues to be splintered among legal departments, procurement teams, finance teams, and sales teams.

Some teams store their contract data in SharePoint. Others have homegrown systems. Some still use old-fashioned file cabinets and Excel spreadsheets. In most cases, these standalone contract repositories are only accessible to certain individuals and groups, with significant differences from one system to the next.

This fragmentation results in poor contract performance analysis and contracts scattered throughout the enterprise, with disconnected workflows and inconsistent language and terms. At times, people can’t even find their own contracts, let alone those of another department. Tracking commitments and deadlines is a manual contracting process, one that’s prone to human error. Rate increase clauses, automatic renewals, incentives, and rebates, service level agreements (SLAs), and other details are often overlooked.

At a minimum, poor contract administration can result in lost revenue, unnecessary costs, and unwanted renewals. At worst, they can cause noncompliance or breach of contract situations that may lead to fines or litigation.

Indeed, the most important part of procurement contract management is not what the company knows about them—it’s what they don’t know that can cost them.

Modern Business Demands Better Contract Management

Meanwhile, contract managers operate in an increasingly complex, global, and agile business environment.

A recent Gartner study confirms the challenges facing enterprises: higher business velocity, employee self-service, governance, risk, and compliance requirements, mergers and acquisitions, digitization, and increasing complexities in procurement, sales, and licensing models.

The risk is real. Without an enterprise approach to contract lifecycle management, organizations risk taking a hit to the bottom line due to lost time and money, damaged reputations, and costly litigation.

Organizations recognize that to stay competitive and reduce business risk, a more holistic contract management solution is necessary.

Visible, Searchable, and Secure: A Better Approach to Contract Management Solutions

The good news is that CLM solutions exist to help you avoid these risks.

Contract management software makes it possible to automate and streamline all aspects of the contract lifecycle to increase visibility, compliance, and contracting velocity while reducing risk.

Contract management platforms unify buy-side, sell-side, and corporate contracts into a single, central repository. These cloud-based platforms dramatically improve contract visibility, velocity, and consistency—reducing contractual risk and boosting operational and financial performance.

From contract creation to tracking and compliance, you’ll have an accurate, real-time picture of your organization’s contracting risks and opportunities. These insights save precious time and resources and help cash flow management become much less complicated.

What are the benefits of contract management?

End-to-end contracting automation for all contract types

Streamline the entire contract lifecycle, from initiation to execution and post-signature, by applying workflow automation to each type of agreement. For example, a CLM software can enable your sales team to self-service NDAs by serving up a pre-approved NDA template from the company library, populating relevant clauses based on pre-defined rules, and routing the NDA for e-signatures for both your company and the client. Once signed, the software stores the final NDA securely within the centralized contract repository. It can also trigger automated reminders for renewals or performance obligations.

This is just one scenario. Contract workflow automation can be applied to other contract types, including employment agreements, vendor agreements, customer contracts, etc.

Risk and compliance management

Contract management software helps identify potential risks within agreements before they become legal problems. The best CLM software uses AI to flag risky clauses and present this information in an easy-to-use dashboard. This proactive approach safeguards your business interests.

Business rules automation

Contract management software automates workflows, centralizes document storage, and simplifies the contract reviews and approvals cycle, saving you and your teams significant time and effort. Automate renewal dates to stay on top of them. The software tracks deadlines and triggers alerts, ensuring your contracts remain compliant and you avoid costly oversights.

Effective clause and template library management

Standardize clauses by creating contract templates in contract management software. This helps ensure that every contract negotiated and signed is in accordance with your company's playbook.

Sourcing and invoicing collaboration portal

No more hunting for the latest contract or invoice in email chains. A collaboration portal acts as a central hub where you can have a clear view of the agreement status at all times and communicate securely with third parties. Questions, clarifications, or any amendments to the agreement can be addressed directly within the platform. The portal provides real-time updates on approvals, outstanding invoices, and flags potential delays, encouraging transparency and accountability.

Channel and vendor payment compliance

Contract management software is crucial in ensuring vendor payment compliance by acting as a central hub for agreement oversight and automating key processes. It can verify that the goods or services received align with the agreed-upon terms and pricing, preventing accidental overpayments or discrepancies. Never miss a deadline again. Users can set up standardized payment terms, establish clear approval workflows, create an audit trail, and trigger alerts for approaching deadlines or potential invoice errors.

Real-time reporting and analytics

Contract management software often includes a dashboard that provides instant insights into the health and performance of an entire contract portfolio. Users can track upcoming renewals, identify expiring contracts at a glance, and monitor the overall value of their active agreements. Advanced software enables users to track key performance indicators (KPIs) associated with each agreement type. Contract management software powered by AI goes one step further and helps organizations identify areas for potential savings by providing insights into contract terms and spend.

Contract Management is a ‘Must-Have,’ not a ‘Nice-to-Have.’

The need for a contract management solution is at a tipping point.

As the analyst firm Forrester noted in its latest report on contract management software: “Contracts formalize who is buying what from whom, at what price, for how long, and puts conditions in place for when things go wrong. The role of managing contracts has been expanding as more and more business transactions are executed through electronic channels and more business relationships become highly differentiated.”

More companies realize that contract accountability and transparency are necessary to meet regulatory and compliance standards. Organizations that have already embraced other cloud-based products understand the benefits of a seamless data environment and see successful contract management as the logical next step in becoming a fully digital organization.

In short, forward-thinking companies are realizing that contract management as an enterprise initiative is no longer a “nice-to-have”—it’s now a “must-have.”

Conclusion

A poorly managed contract management process can result in exposure to serious legal risk; however, with an automated contract management system in place, you can establish effective contract risk mitigation strategies to meet your business's contractual obligations.

Along with a dedicated legal team, contract management software can help your company increase its ability to close deals as well as contract renewals. Poor contract lifecycle management can result in missing key dates, which can lead to expensive renewal costs. A key aim of contract lifecycle management is to establish a system of record to mitigate this risk.

Contract lifecycle management software moves an organization beyond a transactional approach with a fully integrated system that provides valuable insights that scale with its business and help realize the total value of its contracts. To learn more about what a contract lifecycle management software can do to help your organization achieve its business goals, request a demo today.

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