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However, the majority of companies still manage contracts manually in the traditional way. They are not familiar with the idea of the contract management process and how it can benefit their business. In this article, you'll learn not only how to improve your contract management process, but also how such improvements can make the entire contract process more efficient and profitable.
What is a contract process?
A contract process consists of several steps, sub-processes and activities. The individual phases required for a smooth contract process vary depending on the company dealing with contracts, but they are all necessary. Your business and the success of its contracts benefit when you take the time to understand each stage.
A contract process can be divided into 10 phases:
Stage 1: Request
- This is the basis for drawing up contracts. Make sure there are no gaps and that all important details are known, including the partner's requirements, goals, conditions, and identification of important documents and supporting information.
Stage 2: Contract drafting
- After setting the tone in the previous phase, it is now time to draw up the contract. The contract terms are now being written for brand-new contracts or revised for standard contracts.
Stage 3: Negotiate
- At this stage, the parties revise the document and negotiate the conditions that were established during the preparation phase. There is more clarity in this phase, and the parties set clear expectations and a common understanding.
Stage 4: Approval
- The contract will be submitted for internal or external approval as soon as it has been amended on the basis of the new agreements and negotiated terms.
Stage 5: Execute
- In this phase, the deal is sealed and the contract comes into force after both parties have signed it.
Stage 6: Storage
- Contracts must also be stored somewhere and managed in contract storage so that they can be easily searched, tracked, and retrieved.
Stage 7: Regulatory Compliance
- Compliance requires the parties to comply with all conditions set out in the contract and the standards and guidelines established by the government, industry associations, and other agencies.
Stage 8: Audit and Report
- The reports are reviewed to determine whether a contract needs to be revised and to monitor its progress. It is beneficial to make changes and informed decisions before the contract extension date.
Stage 9: Review and Amendments
- In this phase, reports are reviewed to assess how a contract works and whether it needs to be amended. It is beneficial to make changes and wise decisions before the contract extension date.
Stage 10: Renewal
- At this point in the contract period, it is decided whether the current agreement should be terminated, extended or a new one should be started.
Why is contract management important?
A study According to this, an average Fortune 1000 company has an average of 40,000 active contracts on a given day.
A contract must be written, reviewed, discussed and approved 40,000 times, and that's just the beginning!
For this reason, contract management is essential for every company. contract management can be defined as managing contract creation, execution and maintenance. The aim is to improve corporate performance while reducing financial risk. that
Contract management views the entire life cycle of contractual relationships as a business process. And as a business process, it can be evaluated, analyzed and — most importantly — improved. Effective contract management goes far beyond securing a
company ahead of legal risks; it ensures that the
The contract process runs more efficiently and a company can work more profitably.
The weak points of most contract processes
If you work with contracts at any level, you know how frustrating contract management issues can be for everyone involved. The following are some common contract processing issues that you should be aware of.
The need to quickly draw up accurate contract terms
- The legal department must ensure that the wording is complete and correct. At the same time, contracts must be drawn up quickly so that they do not hinder the development of the business. The tension between these two goals is difficult to manage.
Legal teams are seen as bottlenecks
- Missing templates, approval processes, or automations slow down the work of the legal department and often result in it being blamed as a bottleneck for every contract. This strains their resources and causes irritation for those who want to close a deal. This recurring point of contention in the contract cycle and the associated burden on your legal team could eventually force your company to choose between speed and accuracy.
Contract revisions and edits are lost in many versions and locations
- At each stage of the process, there should only be one version of the contract that was accepted. A version can quickly get lost in a sea of confusion and review when multiple copies are distributed in various emails in an erroneous effort to save time.
Unwanted expiration dates and missed deadlines
- With so many ongoing contracts, it can be difficult to keep track of deadlines. The lack of reminders makes it impossible to track critical events, leading to poor implementations and missed opportunities.
Execution of contracts by post or email
- Contract processing can be a huge source of frustration in any contract process. It is inefficient to print out a contract and send it by post so that the other party can review it and send it back with changes. One option is to email contracts to the other party so that they print them out, redact them and then either mail them or scan them and email them back. Unfortunately, this method is not much more efficient than mailing.
How you can optimize your contract processes
Improving contract management processes can drastically revolutionize processes at all levels of the company. The following are the steps you need to take to achieve this.
Creating a contract database
- The secure storage of contracts and other important contract-related data requires a central, cloud-based Contract Repository. When people from different departments use the same digital repository, you no longer have to worry about losing documents because all of your company's contracts are kept in one place. When used wisely, contract repositories act as a single source of truth and help classify, label, and metadata structure documents.
Set up automatic reminders
- It's important that you and your team are aware of important contract updates. You must be aware of critical conditions, obligations, and expiration dates. An essential aspect of contract management is to be informed about upcoming contract extensions, upcoming obligations and important contract provisions.
A good Contract management software supports you in these areas by reminding you in good time of upcoming contract extensions and warning you of breaches and outstanding obligations.
Using contract templates
- It goes without saying that drafting a contract from scratch requires an enormous amount of time and attention to detail. An area covered with prefabricated Contract templates and clauses can be optimized is the preparation of contracts.
Creating construction contracts is now easy: simply select the type from your template library, add the required conditions, and the software automatically fills in the relevant information and customer details. By reducing user errors and typing errors and standardizing legal terminology, streamlining contract drafting directly contributes to reducing risk.
Integrate electronic signatures
- Manual signatures slow down the signing process. In most cases, signing contracts takes more time than actually concluding a deal. By using electronic signatures However, you and your team can spend less time managing paperwork. Electronic signatures often automatically index and archive your contracts. You don't need to scan anymore.
You can also reduce (or maybe even avoid) the costs associated with manually preparing and delivering batches of paper. And, perhaps most importantly, electronic signatures are more secure because they prevent counterfeiting.
Choose an appropriate contract management solution
- You want your contract management software to be effective for you and simple enough for your team to use it effectively.
Many contract management tools are expensive, difficult to set up, and don't meet all of your needs. Using them can lead to frustration and delay your contract life cycle. For this reason, it is important to do research beforehand to the best contract management solution for your company to find.
