Guide to Effective Contract Management Practices
Managing contracts is a crucial, yet often overlooked, part of business management. As your organization grows, so does the volume and complexity of the contracts you have to manage.
Poor contract management practices can lead to costly accidental renewals, a lack of understanding of who manages the contracts, and a contract management system that cannot handle a growing organization.
To prevent these mistakes, you’ll need to set up effective contract management practices and use a platform like Contract Hound to automate your processes and set key alerts on critical changes and renewal dates.
In this article, we’ll discuss everything you need to know to establish effective contact management practices within your organization and how Contract Hound can help you with that.
What is Contract Management?
Contract management, also known as Contract Lifecycle Management (CLM), describes various activities to manage contracts from partners, vendors, employees, or customers.
Effective contract management requires thoroughly understanding every step involved in the contract process, including contribution, creation, and use of the contract data.
Today, effective contract management relies on great software that supports the entire contract and customer lifecycle through automated workflows. It covers any contract-related processes, such as contract reviews or renewals.
For example, Contract Hound allows you to automate contract approval workflows so that you can easily track which team members have approved the contract already, get contract management-related notifications, and see which contracts still require approval.
Stages of a Contract Management Process
To organize efforts and to structure a standard contract process, contract management can be broken down into several stages:
- Initial requests. A contract management process starts by identifying contracts and related documents to support the contract’s purpose.
- Authoring contracts. The next step is creating the contract itself.
- Negotiating the contract. After finishing the first draft, counterparties should compare different contract versions and note discrepancies to minimize negotiation time.
- Approving the contract. Usually, contract approval is the most problematic stage of a contract management process. You can combat this by using automated approval workflows in Contract Hound to keep decisions moving quickly.
- Execution of the contract. To control and shorten the signature process, you can send documents through our seamless integration with DocuSign, allowing you to automatically receive the signed contracts.
- Obligation management. This stage involves project management to ensure the contract’s value isn’t deteriorating, and all stakeholders meet the deliverables.
- Revisions and amendments. Sometimes, gathering all the related documents at the initial draft time can be challenging. When overlooked items are found at a later date, the parties must amend the original contract.
- Auditing and reporting. Contract management is more than simply drafting a contract. You need to conduct contract reviews and audits to determine both parties’ compliance with the agreement’s terms.
- Renewal. Contract renewal dates are easy to miss, leading to lost business revenue. Automate the process by setting up automatic renewal reminders in Contract Hound.
Common Contract Management Mistakes
Many things could undermine the effectiveness of your contract management. If your processes, people, and technology aren’t aligned properly, you are risking quickly lapsing into poor management practices and rendering your processes partially or entirely inefficient.
Here are the most common contract management pitfalls:
- Not maintaining a central repository for contracts. Having gaps in your contract management can leave your organization open to business risks and increased costs. If the only copy of a particular contract is somewhere in a filing cabinet in a remote office, it simply can’t be monitored effectively. Use Contract Hound to securely store your contract portfolio in a single online repository.
- No handover processes in case contract managers leave the company. When somebody exits the business, you need to set aside time to identify all the contracts in which the party was the signatory or key contact.
- Acquiring a new business without auditing existing contracts. A part of the due diligence process during mergers and acquisitions involves reviewing existing contracts to form a clear understanding of the company’s contract risks and obligations. It makes it easier to calculate the right price to pay and devise a detailed post-acquisition plan.
- Addendums aren’t linked to the original contract. As businesses evolve and contracts mature, there might arise the need to expand the scope of contracts. Many times, this will require the signing of addendums. If you don’t link new documents to the old contracts, there will be no clear record of what’s been agreed and when.
- No assigned accountability for managing contract renewals. If you don’t establish clearly who is responsible for approaching vendors and suppliers at the time of contract renewal, you might miss important contract renewal dates and leave everyone unprepared.
7 Steps to Effective Contract Management
There are multiple ways to approach contract management. Still, one thing is unquestionable: creating and following a robust contract management framework will put your team in an excellent position to keep track of all the contracts throughout their entire lifecycle.
Here are the best practices to follow in any situation, regardless of the complexity and size of your contract portfolio:
1. Anticipate Evolving Business Needs
Most organizations evolve, along with their business needs. You need to anticipate those changes and be ready to adjust contracts accordingly.
If your organization is growing fast, and you know that your needs will change shortly, avoid auto-renewal of existing contracts. Rather than auto-renewing contracts with the same terms, consider reviewing them closely to see whether it would be more beneficial to renegotiate based on your evolving needs.
2. Conduct a Contract Audit
To understand the exact contract problems you are facing, conduct a contract management audit that includes all resources, stakeholders, and processes throughout your business that could impact how your contracts are handled from creation and negotiation to management and execution.
3. Develop a Formal Contract Management Framework
Using the findings from your audit, create a formal approach to managing your contract portfolio. This structured framework should address all the elements and stages of a contract management process and clearly define what should happen at each point in time.
Don’t forget to include things like departments and groups responsible for various contract-related processes and tasks, how contract management performance is measured, and any systems and tools that should be used for managing contracts.
4. Set and Measure Contract Management KPIs
The best way to evaluate your contracts’ performance is to set and measure contract management KPIs so that you can later share this information with internal stakeholders.
Looking at these KPIs will also allow you to identify any failed or ineffective parts of your contract management process and work on eliminating unnecessary costs, reducing risks, or finding missed opportunities in your agreements.
5. Conduct Regular Compliance Reviews
The aim of your contract management process should be to improve your company’s compliance with industry standards and regulations. Regularly monitor legal regulations to ensure your contracts adhere to these laws and protect yourself from fines and penalties.
Regularly check for any updates to your business industry’s current regulations and review active contracts to see whether action needs to be taken to ensure compliance.
6. Don’t Wait
Don’t postpone formalizing your contract management processes – as your business keeps moving forward, more and more contracts will be signed, and keeping track of associated tasks and due dates will become nearly impossible.
More importantly, those contracts’ benefits and value will likely be diminished if they are not effectively managed.
7. Use a Contract Management Tool
The contract management platform you choose will be vital to the success of your process.
When considering prospective contract management platforms, think about:
- The value and volume of contracts across your organization
- Automation and setting up notifications
- Effective contract document management processes
- Storage security
- The amount of technical support you’ll need during the implementation period
- The number of people you would like to use the system and their level of technical proficiency
- Industry experience and reviews of your prospective partner
If you are looking for an affordable and reliable contract management solution for small businesses, try out Contract Hound.
How to Organize Contracts Using Contract Hound
By using Contract Hound for your contract management needs, you will ensure the accuracy, timeliness, and efficiency of all of your contract-related tasks.
Here are some tips for organizing your contracts with Contract Hound:
Keep All Your Contacts in One Place
The first step to managing your contracts is knowing where to find them. By keeping all your company’s contracts in the same location, you won’t have to search for an agreement or terms, dates, and specific contract details.
Use Contract Hound to easily upload the contracts into a secure online repository and organize them into folders for easy search.
Balance Access and Storage Security
You need to find the right balance between providing document access to involved parties and ensuring contract security.
Keep Track of Contract Approval Time
The faster you move the contract through the approval process, the sooner you will start seeing the value from that agreement.
In addition, tracking the contract approval process will help you determine whether improvements are needed.
However, to optimize that process for greater efficiency, you need to have a system in place for monitoring the progress.
Send the contract to your team members for approval and track who has approved the contract already, who is up next, or if the contract has been stalled or rejected.
Automate Contract Communications
Today’s contract management software allows managers and legal teams to automate a variety of aspects of the contracting process, especially around communications.
For example, Contract Hound allows users to set up automated contract notifications and alerts to be sent to specific individuals, removing the need for unnecessary emails and manual reminders.
In addition, you can completely eliminate the need to physically send documents for signatures by using DocuSign integrated with Contract Hound.
How to Use Notifications for Contract Management
When manually keeping track of reminders and essential contract dates becomes impossible, Contract Hound allows you to set up automated alerts for virtually anything.
Here is how you can use notifications to manage your contracts more effectively:
- Set up notifications when a contract moves to the next stage. Your contract managers may falsely assume that all the contracts are moving smoothly through their stages. However, when working remotely or managing numerous contracts, it is vital to stay informed of every stage the contract is in. With Contract Hound’s Approval Workflows functionality, you can keep track of which team members have already approved the contract and which ones are up next.
- Set up notifications when a contract process stalls. Sometimes, your contract may get stuck at a specific stage of the approval process. Set up your contract management system to trigger reminders that will let your management team look into why the contract has stalled and what needs to be done to get things moving again.
- Set up reminders for contract renewal dates. Set up automatic alerts in advance of contract renewal dates to never miss an auto-renewal and get a chance to renegotiate contract terms.
- Set up emails for clients and vendors whose contracts are nearing renewal. In addition to reminding your own team about upcoming contract renewals, you might want to set up automatic notifications to your vendors or subcontractors to avoid any interruptions to the services or workflows.
Benefits of Using Contract Management Software
Every organization faces a unique set of contract management challenges and priorities. Luckily, manual contract management with filing cabinets and risky Excel spreadsheets is in the past. Today, there are far more efficient contract management platforms available on the market.
Here is how contract management software like Contract Hound will make your life easier:
#1 Central Location for All Contract-Related Data
Contract management software provides a single central location to store all the contracts and related information within your organization. It makes it easier to search for specific contract information and prevents the issue of having several copies of the same contract floating around, which can lead to confusion.
#2 Reduced Risk
By using automated contract management software, you can reduce risk in several ways:
- It makes it easier to track contract deadlines and renewal dates. By scheduling automated reminders for important contract dates, you can be confident to never get caught off guard when a significant contract deliverable is due or an auto-renewal is approaching.
- It allows learning from previous mistakes. Contract reporting provides your team with an easy way to analyze your portfolio to determine past agreement trends. By identifying underperforming contracts, you can understand what these contracts have in common and look for ways to change the way future contracts are structured.
- It provides stakeholders with critical insights. With contract management software, you can run reports based on interest data, leading to increased insights and contract visibility for leadership teams or department heads.
#3 Time Savings
The number one reason for using contract management software is that it saves you valuable time, which allows you to focus on other vital activities.
Manual contract management is time-consuming, tedious, and inefficient. On the other hand, contract management software is explicitly designed to keep time and efficiency in mind.
- Automated reminders and alerts eliminate the need to manually track important deadlines for hundreds of contracts.
- By storing your contracts in an online searchable repository, you won’t waste time digging through filing cabinets to find a specific contract or reading tens of pages in search of a particular contract clause.
- The electronic signature feature allows getting contracts signed in minutes, without the need to send over physical copies.
- Artificial intelligence features automatically identify and tag essential pieces of information in your contracts, saving you hundreds of hours manually entering these details.
- Permission-based user roles provide administrators with an option to assign different levels of access to users and teams, enabling your colleagues to review contracts for themselves.
Automate Contract Management with Contract Hound
Contract management is a crucial component of a business’s success. If done right, a smart contract management process should result in a central, comprehensive, auditable record of all contracts and corresponding dates.
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