What is contract management?
The process of managing contracts as they go through their lifecycle, as well as the overall auditing and governance of the contracting process, is known as contract management. A typical contract lifecycle begins with a contract request. It passes through stages such as authoring, approval, and negotiation before its execution. The contract lifecycle, however, does not culminate with its execution. Amendments and renewals are also a part of the contracting process.
As the business landscape becomes increasingly regulatory, contract managers are considering risk mitigation and contract governance as critical parts of the contract management process.
The phases of contract management
The typical contract management process can be grouped under three aspects: pre-execution, post-execution, and contract governance.
- The sales or procurement team raises a contract request. A contract manager takes up the contract request and drafts the document using a template.
- The contract manager sends the contract document to internal stakeholders for approval to ensure they are aware of potential opportunities or risks early on.
- Both parties discuss the terms and clauses of the contract in detail and arrive at a final version.
- The parties bring the contract to life by manually or digitally signing the contract document.
- Amendments, if any, are made to the contract after a discussion between the parties.
- The parties discuss and decide to renew or extend a contract beyond the original date.
- The contract owner assigns obligations to stakeholders and ensures their fulfilment.
- Admins store all of a company's contracts in a central storage space or on the cloud to ensure quick access.
- Admins conduct an audit of the company's contracts periodically to stay compliant.
- If the company has a CLM system, contract managers derive valuable insights from reports that help refine the contracting process and impact company strategy.
What is contract management software?
Contract management software is a tool that helps businesses author, negotiate, and sign contracts digitally. It streamlines the contract lifecycle and automates the contract management process, thus helping reduce contract cycle times, mitigate risks, and improve governance and compliance. Most contract management software offers a central repository to store all of a company's contracts, providing improved visibility and better control over the contracting process.
Modern contract management software vs traditional approaches
Problems with the traditional approach
How contract management software helps
Contract authoring is time consuming and error prone since contracts contain numerous pages that must be drafted and checked manually. It is also difficult to maintain language consistency across contracts.
Contract management software offers predefined and custom contract templates, and an extensive clause library. While ensuring language consistency, they also speed up contract authoring and minimize the chances of errors.
Negotiations can go on forever and involve many back-and-forth emails that can be difficult to track.
Contract management software makes the negotiation process seamless with controlled access to contract documents and a negotiation history with the ability to compare older versions of the document.
Identifying and amending contracts in the event of an organization-wide policy change is difficult as contracts are stored haphazardly.
Contract management software offers central storage space for all your contracts. They come with search and filter options that make locating and accessing contracts easy. Clause-based reports help admins identify contracts with specific clauses, making it easier to make amendments.
A separate app or software needs to be employed for the digital signature of a contract. Or the physical document needs to be mailed, printed, signed, and faxed to carry out the process manually.
Most contract management software comes bundled with secure e-signature software. These e-signature software offer military-grade encryption and are compliant with e-signature laws, such as ESIGN and eIDAS.
The chances of missed renewal opportunities are high due to the lack of automated alerts regarding expirations or similar reminders.
Contract management software offers automated alerts and reminder notifications to ensure you never miss out on renewals.
Auditing is a time-consuming and painstaking process as admins need to dig through pages of contract data and track all the activities associated with contracts.
Auditing is simplified with contract management software as they offer a central audit system that stores all the activities performed by all the users in the organization. Some software also provides user access, downloads, and activity logs that give admins better control over the system, fast tracking the auditing process and improving compliance.
Managing contracts on the go is challenging as documents are primarily housed in physical folders or scattered across various applications.
Advanced contract management software comes with a mobile application that lets you manage your contracts while you are on the move.
Who is contract management software for?
Evaluating the contract management process
Ask yourself these questions to evaluate your existing process and decide whether it’s time to invest in a CLM system:
Questions to consider
Yes/No
Are your contract templates stored in a central repository with well-defined access control?Do you have a set of legally-approved clause languages for business users to choose from while authoring or editing contracts?Is there a process in place to constantly update clause languages to the latest industry standards?
Do you have an approval process for stakeholders to stay aware of risks and opportunities at an individual contract level?
Do your negotiations happen online, where you can track changes, view negotiation history, and compare versions?
Do you still sign contracts on physical paper?If you use e-signatures for your agreements, can you configure signature workflows for them?
Do you track the contractual obligations of each contract? Is there a way to monitor their progress?Have you missed contractual obligations or important milestones (renewals, expiry) due to a lack of automated alerts?
Can you track activities at the individual contract and user levels? Are they stored in a central audit system?Do you conduct regular contract audits?
Do you measure critical metrics such as approval turnaround times and contract cycle times?Is there a way to identify negotiation bottlenecks?Can you locate all contracts with a specific clause?
Does your contract data flow seamlessly to your CRM and other ERP systems? Is information, instead, kept in silos?Is your contract data secure and end-to-end encrypted?
Checklist for a successful contract management software implementation
Let’s say you’ve decided to invest in a CLM system for your company. The following checklist will help you structure your implementation process for your team and realize the maximum value from your CLM adoption.
Action items
Responsible individual
Yes/No
Assemble a CLM implementation team, including stakeholders from various departments.
Explain how the selected CLM solution aligns with your company goals to gain buy-in from all team members.
Communicate the end-user benefits and educate your team on the implementation steps and processes.
Document all expenses, including the cost of the CLM solution, configuration, and implementation charges.
Finalize the profiles and core responsibilities of all users you want in the CLM system.
Organize all existing contract data that needs to be imported into the system. Ensure the input information is accurate and complete.
Enable hands-on training for all users on the system’s workflows and functionalities.
Run a sample test in the CLM system by uploading a few contracts and managing their stages to identify bugs or issues.
Monitor how well users adapt to the system and collect their feedback.
Constantly explore other features and functionalities of the system that add value to plan for a deeper implementation.
Choosing the right contract management software: Cloud vs. on-site
Contract management software can be cloud-based or on-site. Choosing between the two rests on several factors, such as control over the product and data, flexibility of use, product cost, industry type, and scalability.
Here’s what studies around the world show - A case for contract management software
Based on an analysis of over 700 organizations by IACCM, business spending on low-risk contracts has increased 38% in the past six years to an average of $6,900. A mid-complexity contract costs $21,300, while high-complexity contracts can cost hundreds of thousands of dollars. Here are some other interesting statistics that can help make the case for CLM software:
- According to World Commerce and Contracting, poor contracting costs companies nearly 9% of their annual revenue.
- A company loses between 17% and 40% of the value on a single deal due to inefficient contracting, estimates KPMG.
- More than 10% of a company’s contracts are either missing or lost, according to Faulkner Information Services.
- A study by KPMG found that stakeholders do not adhere to nearly 70% of executed and active contracts.
- Fifty-seven percent of business development leaders surveyed in the EY Law and the Harvard Law School Center on the Legal Profession survey say their organizations have seen slower revenue due to contracting inefficiencies; 50% of them have missed out on business for the same reason.
- Seventy percent of the organizations that took part in the EY Law and the Harvard Law School Center on the Legal Profession survey have a formal contracting technology strategy, but almost all (99%) do not have the data and technology to optimize their contracting process.
Where are you on your contract management software buyer’s journey?
While contract management software has been around for quite some time, its adoption is currently on the rise. We understand that identifying and implementing the right CLM solution for your business can be challenging and you may still be on the fence regarding it. You could be in one of the following three stages:
- Stage 1: You are trying to understand the scope of CLM software and how it can benefit your business.
- Stage 2:You are considering a CLM solution, evaluating your existing CLM process, and figuring out the level of implementation your business needs right now.
- Stage 3:You've decided to invest in a CLM solution and are considering multiple options.
Regardless of where you stand in your buying journey, you may find our ebook insightful. Get a deep understanding of the digital CLM ecosystem and the key considerations for navigating the complexities of choosing a CLM solution.