Contracts are essential to every business. An easy corollary is that contract management is essential to every business.
As more companies embrace the value of process automation, they are utilising contract management solutions. Contracts are formal, finalised agreements between businesses, and if you are not familiar with the ins-and-outs of contracts, what they do, and what they can do for your business we talk about them exhaustively here, here, and here.
The management of contracts provides your company a single source of truth across all of these relationships. Managing contracts includes the creation, review, signature, and storage of a contract. The contract management process poses a growing challenge as companies mature through business cycles from start-up to larger enterprise.
Why Manage Contracts At All?
During each step of contract management, the management processes propel the contract through each stage of the contract lifecycle. Contracts need to be reviewed, signed, stored, and made visible to all associated parties. However, contract management is easier said than done.
By necessity, a set of contracts must be written in a precise legal language bound by law. Since lawyers are limited and expensive not every organisation has the resources to digest a 40-page independent contract, but - and you might not believe this - contracts contain vital information. So the solution most businesses use to read a contract is manual review and data entry, where they find basic terms of an agreement and summarise as much as possible.
Contract reviews can occur during any stage of contract management. During the negotiation process a review helps in selecting the best terms for the type of agreement that best benefits your business. Several departments, including legal, project management, accounting, or procurement, may need information in the contract during the contract execution stage.
What happens if a mistake occurs during the contract management process? Sometimes, a first name, last name, email, phone number, signature, or date can be missing. These details in the context of legal, formal relationships with other parties can lead to more exposure to liability, risk, and missed opportunities for profit that can all impact your business. All from a contract.
The reason we are hammering contract education as a message is that it is imperative to us that people know exactly how important contracts are to their business, and how much contracts impact them. We want you to get value out of your contracts, but for small or start-up businesses especially we would at least like you to not be actively harmed by your contracts.
The Six Stages of Contract Management
During the contract initiation stage, a company decides to begin a business relationship with a partner, customer, vendor, or employee. Upon contract initiation, businesses should start the contracting process.
The business and interested parties discuss contract agreement arrangements and how they are mutually beneficial to both parties. This is the step before contract generation takes place.
Contractual Obligations Generation
A contract is written based on the agreed-upon terms from both sides. Contract generation may involve filling out a simple template or creating a completely new contract. If a new contract must be written from scratch, it usually involves legal team members.
Both parties review the contract and sign their legal consent to be bound by the written terms. Contract lifecycle management (CLM) improves approval workflow and contract generation through templates, quick distribution, and automated reminders.
During the execution phase, the contract goes into effect. Both parties now find themselves bound by contractual obligations and compliance. Compliance needs to be assured by both parties. In the event of issues on either side, various termination triggers, damage clauses, and other liable effects might occur.
Renewal and Termination
The contract comes up for review for a specific period. If the contract is written to be ongoing, it might be renewed, renegotiated, or amended. If it is designed to be executed only once, the contractual obligations are successfully terminated at an agreed-upon date.
Each of these steps in successful contract management requires collaboration, mutual understanding, and clarity across your business teams. It also requires a lot of people in a lot of departments to ‘touch’ the contract, which can lose a significant amount of contract efficiency – multiply this by the amount of contracts your business processes and deals with and you are left with a staggering amount of time spent dealing with contracts.
Contracts are specialised and require specialist input to read and adjust them – playing pass-the-contract-parcel to manage and maintain contracts inside your business can work (and does work for a lot of people), but details are what contracts are made of. The more people touching, changing, and moving contracts around a traditional system, the more opportunity there is for detail to be missed and changed, for terms to be missing, and for old versions to gum up the whole process.
Organisations often see contracts as the “software” of businesses. Contract management lays out a plan for two parties to cooperate to accomplish mutual benefits. The contract is created with language describing how both parties’ expected roles and actions will benefit each business. Much like software processes, contracts are executed over time and are defined by metrics whether they terminate or cycle endlessly.
We want to make that software work for you.
The Benefits of Contract Management Software
Businesses invest in contract management when they reach a sufficient growth stage, which means that contract volumes are increasing. Since risk is rapidly increasing as well, it is essential to use CLM software to help provide oversight of the contract management process.
Below are a few key benefits to implementing a contract lifecycle management solution:
Creating a contract from a template is faster than writing one from scratch. Building a mass amount of documents is always faster if it can be done at scale rather than manually each time. Collaboration, negotiation, and a signature can happen faster without the manual processes that physical contracting requires.
Let’s say your new employer sends you a contract with a change. You wish to accept it, but unfortunately, there is a wrong start date. Your team has to take time to make changes in the contract, export it to a PDF, print it, and send it in the post for a few days. With the help of contract management software, one or more parties can make immediate changes to a live document without sending it through the mail.
Once someone has made a change to a document, they can email it via a link to all relevant parties.
Another benefit of contract management software is that your contract is now searchable. Storing and managing contracts in a digital system means that a level of searchability saves a vast amount of time over manual processes. Finding concrete results digitally in seconds is preferable to wading through filing cabinets.
Contract management software uses encryption and sophisticated protection to keep contracts safe behind multi-layered security protocols. Agiloft’s performance solutions work with robust defenses that keep your data safe.
Physical contracts are vulnerable to loss and destruction. Contract lifecycle management stores documents indefinitely, backing them up regularly to nullify the risk of loss.
If your need for 10 agreements suddenly becomes 500, the last thing your organization and employees need is a bottleneck in legal. Agiloft users work with contract lifecycle management to quickly increase the volume of contracts they create without extra headcount or budget. Solutions need to be easy for your employees to adapt to and scale successfully.
Transporting an agreement is a business cost for which companies no longer allocate budget. Getting a services supplier agreement to a client across the seas can be instant, with users sharing and collaborating on legal documents regardless of their location, using contract management software.
Companies might have thousands of contracts that need to be retained; this number only increases as time goes on. Contract management software means that storage issues are left to the cloud, not a warehouse or filing cabinet. Contract management is also much easier without having a manager search for a physical copy from months or even years prior.
Using the best software process to manage contracts eliminates time, bottlenecks, and human error from the management process. Modern automation for processing contracts utilises artificial intelligence to scan, parse, tag, and store contracts to be retrieved and reviewed electronically. Contract lifecycle management structures data in contracts to make them exponentially more searchable. A process that once took weeks to complete can now take only a few seconds. Machine learning eliminates human error from contract review and spatial hardware requirements.
With Agiloft’s contract management lifecycle software, your company can manage contracts to make faster, better-informed business decisions.
If an Agiloft Contract Management Solution sounds like the right fit for you, please contact us at: firstname.lastname@example.org to organise a call and start your contract management journey today!
Original article by Jeffery Miesbauer (https://www.agiloft.com/blog/the-principles-of-contract-management/) additional words by C. Redpath