For a vast majority of companies, revenue depends — in part — on contracts with vendors and customers. That's why the effective and efficient management of these contracts is critical to business success.While the importance of contract management is widely recognized, disorganized and ad hoc approaches to managing crucial company agreements continue to plague legal departments. Streamlining contract management by adopting standardized processes can help to improve the performance of both straightforward and more complex contracts.
While many companies are already working to improve their processes, legal departments can create a more optimized contract management system with these four must-have tools:
The earliest work in the contract management lifecycle comes before you enter into an agreement with another party. During the pre-drafting stage, businesses must determine what constitutes a beneficial agreement by considering stakeholder needs, the performance of previous contracts that are similar in nature, market conditions, and other factors.
At this phase of contract management, the focus is on tools that can help you to draft an agreement that will help your business determine the terms that will constitute the greatest value with the least risk.
Must-have #1: Low-friction communication channels with stakeholders
It’s not uncommon for procurement and other teams not be involved in contract fulfillment to be responsible for drafting and negotiating agreements. It’s important to establish effective channels of communication to ensure all contracts meet the needs of the team members who will be using them. In this way, stakeholders can weigh in during this pivotal stage in the contract lifecycle. Emailing contract drafts and related notes back and forth internally is one common approach, but it carries the risk that comments and changes can be lost in multiple conversation threads and document versions. Instead of email, look for a secure, centralized tool that allows for notes and changes to be captured within a single version that can be accessed by all involved.
Must-have #2: Easy access to similar agreements
Not every contract requires you to reinvent the wheel. While some agreements may be quite unique, there are also likely common scenarios or types of arrangements in which standardized contract types will typically be the go-to. You can improve the speed and efficiency of managing those simpler scenarios by setting up a library of standard agreement types that can be quickly applied when the need arises. Additionally, you will find that for more complex agreements, these standard contracts serve as a good starting point.
Once you have successfully planned your contract, and have negotiated and reached an agreement with the contracting party, the next crucial step is getting the contract signed. The faster you do so, the sooner you will start seeing the benefit of your agreement. Additionally, it’s crucial to keep things moving once an agreement has been reached because until it's signed, your agreement exists only in principle. In other words, it’s not yet a done deal. The risk of an incomplete, stalled, or failed contract still exists, meaning all the time and effort you put into planning and negotiation may go to waste.
Must-have #3: E-signature enablement
A contract isn’t a deal until it’s been signed by the appropriate parties. And the best way to avoid delays or breakdowns once you have reached agreement on contract terms is to keep the momentum and get those signatures as soon as possible. Once upon a time, signing faced inevitable logistical delays related to shuttling paper copies back and forth between signing parties in different offices and locations, e-signatures. With legal electronic document signing that can now be done from any device, quickly and securely.
Now that your contract is signed, it’s important to keep on top of all obligations and milestones. Actively monitoring contract deliverables and performance throughout the term of your agreement is vital for ensuring that you benefit from the full value of your contract and minimize your risks. Effective monitoring requires an execution plan, which details what needs to happen while the contract is in effect, when it needs to happen, and who is responsible.
Must have #4: Automatic notifications
Tracking each contract-related task and milestone – multiplied by a countless number of contracts – is cumbersome work. Trying to do so manually can also be risky if you let these tasks (or the task of reminding other parties of their obligations) get away from you. Contract management software with automatic notification features can significantly reduce the burden of managing the execution phase by taking care of the remembering for you. Instead of having to stay on top of each task throughout the duration of your agreement, you can set reminders (and enable automatic email reminders for others) so that each required action is top of mind right when it needs to be.