What is Contract Management?

Contracts are the foundation of commerce. But managing those agreements – from initial negotiation to final fulfillment – can be a complex and time-consuming process. That's where contract management comes in.

Contract Management Defined

Contract management is the process of managing legal agreements from start to finish, ensuring they are created, executed, and reviewed effectively. The goal is to maximize operational and financial performance while minimizing risk. It involves management activities that ensure all parties are fulfilling their contractual obligations and following the agreed upon terms. The activities include:

1. Drafting and negotiation: 

Crafting the initial terms and conditions of the agreement.

2. Execution: 

Formalizing the agreement with signatures from all parties.

3. Performance monitoring: 

Ensuring all parties adhere to the agreed-upon terms.

4. Amendment: 

Making adjustments to the contract if necessary, or as circumstances evolve.

5. Renewal or termination: 

Bringing the contract to a close upon completion or expiration.

Essentially, it's the practice of ensuring all sides get what they agreed to from the deal.

Who Is Responsible for Contract Management in an Organization?

Typically, legal, procurement, and contract management teams oversee and manage contracts. However, other internal company stakeholders like sales, finance, and operations are also often involved. These roles ensure that contracts are well-managed, legally compliant, and aligned with the organization’s goals. Collaboration across teams is essential to streamline the process and mitigate risks. Here is a breakdown of the key players involved and their responsibilities.

1. Legal Department

The legal department plays a central role in contract management. This team drafts, reviews, and approves contracts to ensure compliance with laws and organizational policies. They are also responsible for maintaining standardized contract templates and clauses, providing legal guidance during negotiations, and resolving disputes that may arise.

This department sometimes includes risk and compliance officers who focus on evaluating contracts for potential risks and ensuring adherence to legal and regulatory requirements. They track compliance with industry standards and implement governance processes to mitigate risks, helping the organization avoid costly legal or financial penalties.

2. Procurement Team

The procurement team focuses on managing contracts with vendors and suppliers. They negotiate terms to secure the best value for the organization while adhering to procurement policies. The procurement team also monitors supplier performance and ensures compliance with contractual obligations, making them integral to the vendor relationship management process.

3. Contract Managers

Contract managers or administrators oversee the entire contract lifecycle. Their responsibilities include tracking deadlines, milestones, and contractual obligations, ensuring that contracts are executed efficiently. They act as the central point of contact for all contract-related queries and often use contract lifecycle management (CLM) software to streamline their workflows.

4. Sales Team

On the revenue side, the sales team handles customer contracts. They negotiate and finalize terms with clients, ensuring that the contracts reflect customer-specific requirements. The sales team works closely with legal and other stakeholders to expedite approvals and ensure timely contract execution, which helps drive revenue growth.

5. Finance Department

The finance department ensures that contracts align with the organization’s financial goals. They collaborate with the legal team to monitor revenue recognition, pricing terms and payment schedules within contracts. Additionally, finance teams analyze the financial impact of contracts on budgets and forecasts, ensuring financial compliance and accurate reporting.

6. Operations Team

The operations team ensures that the terms outlined in contracts align with operational goals and resource availability. They monitor deliverables, timelines, and other performance metrics specified in the contracts. This team plays a crucial role in ensuring that the execution of the contract is seamless and supports overall business objectives.

7. IT Department

The IT department provides technical support for contract management tools and systems. IT teams focus on data security and maintaining the integrity of contract-related information, which is critical for protecting sensitive data. They implement and maintain CLM software, ensuring that they adhere to information security best practices such as the SSO. Additionally, they provide the technical expertise needed to integrate with other enterprise tools like ERP and CRM systems. 

In short, contract management is a collaborative process involving multiple departments and roles across the whole company. When done well, each stakeholder contributes specialized expertise to ensure that contracts are created, executed, and managed efficiently, and the company is shielded from legal risks and exposure.

The Challenges of Traditional Contract Management

For many enterprises, the contract management process continues to be splintered among legal departments, procurement teams, finance teams, and sales teams.

Some teams store their contract data in SharePoint. Others have homegrown systems. Some still use old-fashioned file cabinets and Excel spreadsheets. In most cases, these standalone contract repositories are only accessible to certain individuals and groups, with significant differences from one system to the next.

This fragmentation results in poor contract performance analysis and contracts scattered throughout the enterprise, with disconnected workflows and inconsistent language and terms. At times, people can’t even find their own contracts, let alone those of another department. Tracking commitments and deadlines is a manual contracting process, one that’s prone to human error. Rate increase clauses, automatic renewals, incentives, and rebates, service level agreements (SLAs), and other details are often overlooked.

At a minimum, poor contract administration can result in lost revenue, unnecessary costs, and unwanted renewals. At worst, they can cause noncompliance or breach of contract situations that may lead to fines or litigation.

Indeed, the most important part of procurement contract management is not what the company knows about them—it’s what they don’t know that can cost them.

Modern Business Demands Better Contract Management

Meanwhile, contract managers operate in an increasingly complex, global, and agile business environment.

A recent Gartner study confirms the challenges facing enterprises: higher business velocity, employee self-service, governance, risk, and compliance requirements, mergers and acquisitions, digitization, and increasing complexities in procurement, sales, and licensing models.

The risk is real. Without an enterprise approach to contract lifecycle management, organizations risk taking a hit to the bottom line due to lost time and money, damaged reputations, and costly litigation.

Organizations recognize that to stay competitive and reduce business risk, a more holistic contract management solution is necessary.

Visible, Searchable, and Secure: A Better Approach to Contract Management Solutions

The good news is that CLM solutions exist to help you avoid these risks.

Contract management software makes it possible to automate and streamline all aspects of the contract lifecycle to increase visibility, compliance, and contracting velocity while reducing risk.

Contract management platforms unify buy-side, sell-side, and corporate contracts into a single, central repository. These cloud-based platforms dramatically improve contract visibility, velocity, and consistency—reducing contractual risk and boosting operational and financial performance.

From contract creation to tracking and compliance, you’ll have an accurate, real-time picture of your organization’s contracting risks and opportunities. These insights save precious time and resources and help cash flow management become much less complicated.

What are the benefits of contract management technology?

1. End-to-end contracting automation for all contract types

Streamline the entire contract lifecycle, from initiation to execution and post-signature, by applying workflow automation to each type of agreement. For example, a CLM software can enable your sales team to self-service NDAs by serving up a pre-approved NDA template from the company library, populating relevant clauses based on pre-defined rules, and routing the NDA for e-signatures for both your company and the client. Once signed, the software stores the final NDA securely within the centralized contract repository. It can also trigger automated reminders for renewals or performance obligations.

This is just one scenario. Contract workflow automation can be applied to other contract types, including employment agreements, vendor agreements, customer contracts, etc.

2. Risk and compliance management

Contract management software helps identify potential risks within agreements before they become legal problems. The best CLM software uses AI to flag risky clauses and present this information in an easy-to-use dashboard. This proactive approach safeguards your business interests.

3. Business rules automation

Contract management software automates workflows, centralizes document storage, and simplifies the contract reviews and approvals cycle, saving you and your teams significant time and effort. Automate renewal dates to stay on top of them. The software tracks deadlines and triggers alerts, ensuring your contracts remain compliant and you avoid costly oversights.

4. Effective clause and template library management

Standardize clauses by creating contract templates in contract management software. This helps ensure that every contract negotiated and signed is in accordance with your company's playbook.

5. Sourcing and invoicing collaboration portal

No more hunting for the latest contract or invoice in email chains. A collaboration portal acts as a central hub where you can have a clear view of the agreement status at all times and communicate securely with third parties. Questions, clarifications, or any amendments to the agreement can be addressed directly within the platform. The portal provides real-time updates on approvals, outstanding invoices, and flags potential delays, encouraging transparency and accountability.

6. Vendor compliance

Contract management software is crucial in ensuring vendor payment compliance by acting as a central hub for agreement oversight and automating key processes. It can verify that the goods or services received align with the agreed-upon terms and pricing, preventing accidental overpayments or discrepancies. Never miss a deadline again. Users can set up standardized payment terms, establish clear approval workflows, create an audit trail, and trigger alerts for approaching deadlines or potential invoice errors.

6. Real-time reporting and analytics

Contract management software often includes a dashboard that provides instant insights into the health and performance of an entire contract portfolio. Users can track upcoming renewals, identify expiring contracts at a glance, and monitor the overall value of their active agreements. Advanced software enables users to track key performance indicators (KPIs) associated with each agreement type. Contract management software powered by AI goes one step further and helps organizations identify areas for potential savings by providing insights into contract terms and spend.

What Happens When There's No Contract Management System?

A poorly managed contract management process can result in exposure to serious legal risk for an organization. Additionally, poor contract lifecycle management can result in missing key dates, which can lead to expensive renewal costs. However, with an automated contract management system in place, you can establish effective contract risk mitigation strategies to meet your business's contractual obligations.

A key aim of contract lifecycle management is to establish a system of record to mitigate contractual risks. Along with a dedicated legal team, contract management software can help your company increase its ability to close deals as well as contract renewals. 

Contract Management is a ‘Must-Have,’ not a ‘Nice-to-Have.’

The need for a contract management solution is at a tipping point.

As the analyst firm Forrester noted in its latest report on contract management software: “Contracts formalize who is buying what from whom, at what price, for how long, and puts conditions in place for when things go wrong. The role of managing contracts has been expanding as more and more business transactions are executed through electronic channels and more business relationships become highly differentiated.”

More companies realize that contract accountability and transparency are necessary to meet regulatory and compliance standards. Organizations that have already embraced other cloud-based products understand the benefits of a seamless data environment and see successful contract management as the logical next step in becoming a fully digital organization.

In short, forward-thinking companies are realizing that contract management as an enterprise initiative is no longer a “nice-to-have”—it’s now a “must-have.”

Consider Icertis

Contract lifecycle management software moves an organization beyond a transactional approach with a fully integrated system that provides valuable insights that scale with its business and help realize the total value of its contracts. To learn more about what a contract lifecycle management software can do to help your organization achieve its business goals, request a demo today.

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