However, the majority of businesses still manage contracts manually using conventional ways. They are unfamiliar with the idea of the contract management process and how it helps their companies. In this article, you will not only learn how to improve your contract management process, but you will also understand how such improvements may make the overall contracting 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 company and the success of its contracts will benefit if you take the time to understand each phase.
A contract process can be divided into 10 phases:
Stage 1: Request
- This is the basis for drafting contracts. Make sure there are no gaps and that all important details are known, including the partner's requirements, objectives, conditions and identification of important documents and supporting information.
Stage 2: Contract drafting
- Having set the tone in the previous phase, it is now time to write the contract. The contract terms are now written for brand new contracts or revised for standard contracts.
Stage 3: Negotiation
- In this phase, the parties revise the document and negotiate the terms that were set in the drafting phase. In this phase there is more clarity and the parties establish clear expectations and a common understanding.
Stage 4: Approval
- The contract is sent for internal or external approval as soon as it has been amended on the basis of the new agreements and negotiated terms.
Level 5: Execute
- At this stage, the deal is sealed and the contract comes into force after both parties have signed it.
Stage 6: Storage
- Contracts also need to be stored somewhere and managed in a contract repository so that they can be easily searched, tracked and retrieved.
Level 7: Compliance
- Compliance requires that the parties follow all the terms and conditions set out in the contract, as well as the standards and guidelines established by the government, industry associations and other authorities.
Stage 8: Audit and report
- The reports are reviewed to determine if a contract needs to be revised and to monitor its progress. It is beneficial to make changes and informed decisions before the contract renewal date.
Stage 9: Review and Amendments
- At this stage, reports are reviewed to assess how a contract is working and whether it needs to be changed. It is beneficial to make changes and wise decisions before the contract renewal date.
Stage 10: Renewal
- At this point in the contract term, a decision is made whether to terminate the current agreement, extend it or start a new one.
Why Is Contract Management Important?
According to one study, the average Fortune 1000 company has 40,000 active contracts on any given day.
A contract has to 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 the management of contract creation, execution and maintenance. The goal is to improve business performance while reducing financial risk. The
Contract management views the entire life cycle of contractual relationships as a business process. And as a business process, it can be assessed, analysed and - most importantly - improved. Effective contract management goes far beyond securing a
company from legal risks; it ensures that the
contract process runs more efficiently and a company can operate more profitably.
The Flaws With Most Contract Processes
If you work with contracts at any level, you know how frustrating contract management problems can be for everyone involved. Below are some common contract management problems you should be aware of.
The Need to Quickly Establish Accurate Contract Terms
- The legal department must ensure that the wording is complete and correct. At the same time, the contracts must be drafted 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
- Lack of templates, approval procedures or automation slows down the legal department's work and often leads to them being blamed as a bottleneck for every contract. This puts a strain on their resources and causes irritation among those who want to close a deal. This recurring point of contention in the contract cycle and the burden it places 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 be only one version of the contract that has been accepted. One version can quickly get lost in a sea of confusion and review if multiple copies are distributed in different emails in a mistaken effort to save time.
Unwanted Expiry 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 follow up on critical events, leading to poor implementations and missed opportunities.
Execution of Contracts by Mail or E-mail
- Contract processing can be a major source of frustration in any contract process. It is inefficient to print out a contract and send it by post for the other party to review and return with changes. One option is to email contracts to the other party for them to print, edit and then either post or scan and email back. Unfortunately, this method is not much more efficient than sending it by post.
How to Level up Your Contract Processes: 5 Things to Keep In Mind
Improving contract management processes can drastically revolutionise operations at all levels of the organisation. Below are the steps you need to take to achieve this.
Creation of a contract database
- Secure storage of contracts and other important contract-related data requires a central, cloud-based contracthttps://www.top.legal/wissen/vertragsarchiv-erstellenRepository. 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 stored in one place. When used wisely, contract repositories act as a single source of truth and help with document classification, tagging and metadata structure.
Set up Automatic Reminders
- It is important that you and your team are aware of important contract updates. You need to be aware of critical terms, obligations and expiry dates. An essential aspect of contract management is to be aware of upcoming contract renewals, pending commitments and important contract terms.
Good contract management software will support you in these areas by providing timely reminders of upcoming contract renewals and warnings of breaches and outstanding obligations.
Make Use of Contract Templates
- It goes without saying that drafting a contract from scratch requires an enormous amount of time and attention to detail. One area that can be optimised with ready-made contract templates and clauses is contract drafting.
Creating construction contracts is now simple: just select the type from your template library, add the required terms and conditions, and the software automatically fills in the relevant information and client details. By reducing user errors and typos and standardising legal terminology, streamlining contract creation directly contributes to risk reduction.
Integrate Electronic Signatures
- Manual signatures delay the signing process. Most of the time, signing contracts takes more time than actually closing the deal. However, by using electronic signatures, you and your team can spend less time managing paperwork. Electronic signatures often index and archive your contracts automatically. You no longer need to scan.
You can also reduce (or perhaps eliminate) the costs associated with manually preparing and delivering stacks of paper. And, perhaps most importantly, electronic signatures are more secure as they prevent forgery.
Choose a Suitable Contract Management Solution
- You want your contract management software to be effective for you and easy enough for your team to use effectively.
Many contract management tools are expensive, difficult to set up and don't meet all your needs. Using them can lead to frustration and delay your contract lifecycle. That's why it's important to do your research upfront to find the best contract management solution for your business.