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The processing of contracts is a crucial aspect of the business activities of companies in various industries. It includes drafting, reviewing, negotiating and managing legally binding agreements between two or more parties. In the modern business world, effective contract processing is essential to ensure that a company's legal interests are protected, risks are mitigated and strategic goals are achieved.
What is Contract Processing?
Contract processing is a series of steps involving the preparation, review, negotiation, approval, execution and administration of a contract between two or more parties. Contracts are legal agreements that define the rights, responsibilities and obligations of the parties involved and are crucial for establishing and maintaining successful business relationships.
The Typical Cycle of Contract Processing
Draft
The drafting of contracts is the first phase of the contract processing cycle, in which a legally binding agreement is created that sets out the terms of the relationship between two or more parties. It plays a central role in the entire contract processing, as it forms the basis for the entire contractual relationship.
For modern companies using digital solutions, the average contract creation step has evolved significantly, streamlining the process and improving efficiency.
Companies often have a library of ready-made contract templates for various types of contracts. The design process starts with choosing the most appropriate template based on the specific transaction or relationship. Based on the selected template, the author then adapts the contract to the individual needs of the parties involved. This may include including party-specific information, adapting clauses, or adding additional provisions. Digital contract creation tools often include features such as clause libraries, smart fields, and guided questionnaires to make customization easier.
Reviewing
Contract review is the next critical phase in the contract execution cycle, as it involves carefully reviewing and evaluating the terms of a draft contract before it is executed. This step plays an important role in the overall contract execution, as it ensures that the contract meets the interests and requirements of all parties involved.
For modern companies that use digital solutions, the average contract review step has become ever more efficient and streamlined. The process usually starts with importing the contract into a digital contract management platform. Sophisticated AI-driven tools then analyze the document and identify key clauses, conditions, and potential risk factors. These platforms can also highlight deviations from standard regulations, ensuring compliance with company policies and industry regulations.
At the same time, real-time collaboration features enable legal and other internal teams to provide input and suggest changes, while version control provides transparency and eliminates ambiguity. By using digital solutions, companies can significantly improve their contract review process and ensure accuracy, compliance, and risk reduction in a more efficient way.
Negotiating
In the Contract negotiation phase The parties to an agreement discuss, refine and agree on the terms set out in the contract. This collaborative process aims to reach a mutually beneficial agreement and ensure that the needs and interests of all parties are met and balanced.
The average contract negotiation has evolved to become more efficient and cooperative. Typically, the process starts with the secure approval of the draft contract via digital contract management platforms, which enable parties to access the document, review it, and directly suggest changes.
Modern functions such as real-time collaboration, redlining and commenting simplify the exchange of feedback and counteroffers and ensure a transparent and organized negotiation process. Version control and audit trails help track changes and accurately record the negotiation process, while integrated communication tools enable seamless discussions between parties.
The benefits of specialized software also apply to this phase: By using digital solutions, companies can streamline their contract negotiation process and promote open communication and collaboration in order to reach mutually beneficial agreements more efficiently.
Approve & sign
As soon as the contract is reviewed, negotiated and completed, it goes through an internal approval process. Digital contract management platforms often include automated approval workflows that forward the contract to relevant decision makers based on predefined rules, such as contract value or department. These platforms also facilitate real-time collaboration, so approvers can review, suggest changes, or approve the contract with just a few clicks. Email notifications and reminders ensure timely reviews, while audit trails and reporting features ensure transparency and traceability throughout the approval process.
The signing process as part of contract processing is the last step before a contract becomes legally binding. The signatures of all parties involved are obtained, which thus declare their agreement with the conditions set out in the contract. In recent years, the signing process has evolved significantly as many companies have switched from traditional, manual signature methods to electronic signature solutions.
Managing
The management phase within contract execution refers to the ongoing monitoring, control and administration of a contract throughout its entire life cycle, from execution to termination or renewal. Without a proper administrative phase, parties run the risk of not properly fulfilling their contractual obligations and identifying opportunities to optimize performance and reduce risk.
Thanks to digital solutions, contract management has now become efficient and data-driven. Organizations use contract management platforms to store and organize contracts in a central repository, allowing easy access, retrieval, and tracking.
Automatic alerts on important dates such as milestones or extension deadlines ensure timely action and reduce the risk of non-compliance.
Best Practices for Contract Processing
Efficient contract execution is an essential aspect of any modern contract management solution, as it involves the various phases of drafting, negotiating, concluding, and executing contracts. By following contract processing best practices and making the effort to implement each practice, you can significantly streamline your contract process, minimize risks, and create an improved CLM system. The following are some best practices for contract processing:
- Standardize your draft contracts: Develop standardized templates for commonly used contracts as they can improve consistency, save time, and reduce legal risks.
- Use clear and concise language: Use simple English and avoid legal jargon whenever possible. This makes the contract easier to understand and ensures that all parties understand the terms.
- Setting up and maintaining a contract archive: Maintain a central, organized, and easily accessible repository for all contracts and related documents. This ensures that all parties involved can easily find and look up contact information when needed.
- Value effective collaboration: Encourage teamwork and communication among relevant stakeholders, such as legal, procurement, and business teams. This can help prevent misunderstandings and ensure that all parties are on the same page.
- Conduct a due diligence review: Research thoroughly and screen potential partners, suppliers, and contractors before signing a contract. This minimizes the risk of concluding an unfavorable contract.
- Monitor, audit, and analyze: Regularly review and evaluate the performance of contracts to identify potential issues, bottlenecks, or areas for improvement.
- Follow the milestones: Set key milestones and deadlines for each contract, and track progress to ensure timely completion
Technologies and Tools for Contract Processing
By outlining the individual steps in the contract processing cycle, we've hopefully made it clear that using contract processing technologies and tools is critical for modern businesses as they improve efficiency, accuracy, and scalability. Contract management software, for example, automates repetitive tasks, streamlines workflows, and accelerates the entire contract life cycle, resulting in significant time and resource savings. These tools also help minimize human error by ensuring more accurate contract creation, version control, and data entry.
As companies grow and the volume and complexity of contracts increase, contract management software enables seamless management and tracking of all contractual activities. This helps companies ensure regulatory compliance, mitigate risks, and improve decision-making, which in turn leads to better business results.
The following are some of the key areas of tools that can significantly improve a company's contract processing cycle:
Contract Management Software
Many companies use these software solutions to manage their contracts in a central repository that provides easy access and retrieval and improves collaboration between internal teams and external parties. Automated workflows, template libraries, and monitoring features help organizations save time and ensure compliance with regulatory requirements, industry standards, and internal policies.
If you are interested in a suitable contract management solution for your company, please read our Contract Software Guide.
Electronic signatures
Electronic signatures have become more important for companies in recent years, as the digital revolution has changed the way companies work. Laws such as the Electronic Signatures in Global and National Commerce (ESIGN) Act in the United States, which was enacted in 2000, and the eIDAS Regulation in the European Union, which came into force in 2016, created the legal framework for recognizing electronic signatures as valid and legally binding.
Electronic signatures offer numerous benefits for companies and contribute to greater efficiency, cost savings and increased security. Some of the key benefits include:
- Time saving: Electronic signatures eliminate the need to print, sign, scan, and send physical documents, significantly speeding up the signing process and closing deals faster.
- Cost reduction: By reducing reliance on paper, printing, and mail, electronic signatures help companies save on material and shipping costs, which contributes to a more sustainable and cost-effective approach to contract processing.
- Increased safety: Electronic signature solutions typically offer robust security measures, such as encryption, secure authentication, and digital audit protocols, which ensure the protection of sensitive data and the legal enforceability of signed agreements.
