Contract Management 101
Did you know that poor contract management continues to cost companies 9% of their bottom line?
Gartner defines contract management as “a solution and process for managing the lifecycle of contracts created and/or administered by or impacting the company.” An effective contract management process is the foundation for a strong business and connects all parts of the enterprise, such as legal, sales, finance, and procurement teams, as well as risk management, IT, operations, and more. Overall, proper contract management practices will help you ensure the legal and financial wellbeing of your business.
Not only are contracts the backbone of all commercial relationships, but they often dictate the very outcomes of these relationships. Importantly, contracts help businesses clearly define the parameters of working relationships to ensure expectations are met.
Contracts also help parties in a business relationship recognize what corrective actions must be taken in the event that contractual obligations are not realized.
Most contract management programs include the following steps:
- Contract request
- Obligation management
4 Key Objectives of Contract Management
An effective contract management process will help you stay on top of your contracts, optimize resources and productivity, and extract maximum business value from them. Let’s review five key objectives of an effective contract management process:
- Standardizing the contracting process to ensure compliance and reduce risk: Keep your contracting process standardized to ensure that the approved process and contract templates and clauses are used across the enterprise irrespective of geographical location, department, etc., thereby reducing risk from maverick contracting.
- Maximize enterprise value realization: Effective contract management ensures that the value negotiated into contracts is realized and the intended business outcomes are accomplished during the in-life phase of the contract.
- Streamline the process of negotiating and managing contracts to reduce time and costs: Whether it be a salesperson negotiating a deal or your finance department trying to ensure commercial compliance across global teams, a sound contract management process will simplify your workflows, help reduce cycle times, and increase the speed of doing business.
- Improve visibility into commercial relationships: Contract management empowers organizations with the data and insights required to assess the effectiveness of enterprise relationships with suppliers, customers, and partners.
The Contract Management Process Explained
Efficient contract management doesn’t just magically happen. A contract’s entire scope undergoes a defined process, eliminating any oversight, miscommunication, and errors. The different stages of contract management include:
- Contract request and contract creation: The relevant department sends a request for a new contract in response to recently identified business goals and objectives.
- Draft the contract: The legal team drafts the contract using the appropriate contract templates and standard clauses.
- Negotiation, contract review, and approval: The counterparty receives the contract and reviews the terms with their legal department. After extensive redlining and review, both parties negotiate contract terms until both are in agreement.
- Finalize, sign, and execute the contract: A final copy of the document is drafted and both parties execute the contract with an electronic signature.
- Storage: The contract is safely stored for easy future access. This also helps maintain audit trails for swift audit responses.
- Manage obligations and ensure compliance: This involves monitoring performance and compliance against the deliverables and terms captured in the contract.
- Close/Renew: To avoid unintended auto-renewals of underperforming contracts or unplanned and sudden contract expirations that cause business disruption, proactively monitoring and responding to contract renewals or expiration events is necessary.
Issues with Traditional Contract Management
Why are businesses turning to digital contract management solutions? Digital and smart contract management platforms provide an unparalleled level of security, ease, compliance, and collaboration between parties.
These are important tenets that may not be available through traditional contract management. Here are just a few issues with traditional contract management that have businesses turning to innovative platforms like Sirion:
- Manual processes: Manual management of contracts is often inefficient and error-prone. With manual processes, you waste precious time during the creation of new contracts in extensive manual red-lining, legal review, and status tracking. Not only is manual contract management time-consuming, but it is also extremely expensive. With manual processes, you must account for the associated manpower and overhead costs.
- Limited collaboration: Contract negotiation is collaborative by nature; it requires significant teamwork and internal collaboration with other business functions that are impacted by the contract. Ensuring this collaboration is very difficult with traditional contract management approaches due to the inherent siloed way of working of enterprise teams.
- Inherent risk due to lack of standardization: Traditional contract management lacks built in risk controls to effectively enforce and ensure compliance to the approved contracting process. Using different systems between parties and exchanging information via spreadsheets or one-off documents presents a massive opportunity for error. (In fact, up to 88% of spreadsheets contain mistakes, leaving discrepancies that can be costly in the long-run.)
- Poor visibility and reporting after contract signature: The limited ability to mine contracts for insight using legacy tools like spreadsheets leaves room for human error and unreliable data/metadata. Further, searching for and retrieving contracts is difficult in legacy systems and time is wasted looking for the right pieces of information in unorganized filing cabinets/offline repositories. In the end, these bottlenecks and subsequent lack of visibility lead to missed deliverables and deadlines.
Smarter Contract Management
Technology-led contracting eliminates human error when dealing with your most sensitive documents. The new generation of AI-enabled contract management software gives you the tools to seamlessly manage the enterprise contracting process. By combining automation, artificial intelligence, and collaboration, contract management technology enables smarter contracting to deliver improved efficiency, risk control, and better business outcomes.
The benefits of smarter contract management platforms include:
- End-to-end contract management automation
- Compliance to approved, standardized contracting process driving reduced risk through stronger contract compliance
- Efficient contract negotiation and legal review
- Enterprise-wide visibility into your contract portfolio with a central repository
- Advanced contract analytics to harness the intelligence in contracts
- Ability to drive business outcomes with actionable insights
- Ability to align performance to what’s promised in the contract
- Improved collaboration with stakeholders (internal and external)
Smarter contract management systems help unify critical business objectives within a single platform. This cutting-edge technology empowers enterprises with rich data and actionable insights, while simultaneously saving time and safeguarding business interests.
Offering end-to-end capabilities to automate processes and streamline the entire contracting lifecycle, Sirion is the foundation of smarter contracting. Through our innovative platform, we combine category-leading software, contract lifecycle management expertise, and a deep commitment to customer success.
Request a Demo to learn how Sirion can help grow and protect your business.