Most organizations strive to adapt and leverage best practices to ensure that maximum benefits are achieved for their business. As with all process automation initiatives, the goal is standardisation along with cost, and liability reduction. Contract management best practices require an evaluation and combination of the organization’s current contract management process and technology to ensure maximum value creation. Naturally, you may already be using some of these principles in isolation, but as with most things, the compounding effect is significantly greater when they are used together.
Below, we review 10 best practice recommendations that you can use to improve your contract management processes.
What is Contract Management?
Contract management is the business process that helps manage the creation, review, execution, monitoring, evaluation, and renewal of contracts to maximize business performance while minimizing risk. Contract lifecycle management solutions can provide enormous value to your business with little investment and effort. Contracts are typically put in place to prevent disputes, liabilities, and legal risks. Because contracts are a fundamental part of any successful business, you need to ensure you store, manage, and extract as much value from these agreements as possible in your current operation.
Contract lifecycle management is critical to your company’s success. Legally binding contracts determine a business’s stakeholder relationships, pricing structures, work scope, rights and obligations, timelines for projects, warranty provisions, and more. If you understand how critical contracts are, effective contract management can dramatically increase your organization’s performance. Poor contract management can expose your business to a variety of operational and financial problems.
The role of contract management is ever-changing. Contract management involves understanding every aspect of a contract’s lifecycle to extract meaningful data and information insights. Businesses that engage in successful contract lifecycle management drive their contract performance and achieve their objectives through efficient contracting and faster cycle times. Contract Lifecycle Management (CLM) has evolved from an operational record-keeping system to an enterprise-level core system that addresses business risk, costs, and the maximization of revenue and profits. To get a thorough overview of contract management, we found the following Business News Daily article insightful.
10 Best Contract Management Practices
Below are ten examples of contract management best practices that you and your team members can use in your organization.
1. Standardized Contract Creation
Effective contract management can result in more efficient work processes. Your legal department can achieve considerable time savings through the standardization and pre-approval of contract language and terms. For any legal department, a standard set of templates that include similar clause language, vocabulary, conditions, and legal terminology can be applied to many contracts. Using identical, pre-approved wording can enable the general counsel to reduce review time. Common language allows the legal counsel to concentrate on specific sections unique to the contract under review.
2. Vendor/Supplier Performance Management KPIs
Being able to articulate contract management KPIs offers you a transparent set of measurements for your fundamental business goals. It is much easier for leaders in a department to develop best practices that generate results if they know exactly what their business goals are. Unmet KPI’s may reveal leaking costs or productivity issues that are harder to spot without a clear understanding of the standards or expectations.
3. Balance Storage Security and Visibility Requirements
Some of the best contract management solutions meet two objectives that are usually at odds–the security and visibility of sensitive contract information and quick, easy contract access.
The solution to managing contracts safely is to have a security system that utilizes robust verification of authorized personnel to ensure the identification of employees or partners. Confidential documents are safeguarded by a security process that prevents unauthorized user access. Having a central system simplifies contract access across the organization. System administrators can grant various access levels, so users only see files they have the authority to view.
4. Streamline Approvals to Slash Turnaround Times to Save Money
A streamlined contract management approval process benefits your organization in multiple ways. First, your business holds the advantage of receiving contracted goods and services quicker than most, saving money and hassle.
Positive relationships are a result of a shorter cycle from the initial conversation to finalized approval agreements. This is done by adding convenience on both sides. Businesses that are quicker and more responsive may have a much easier time seizing opportunities with tight turnaround times.
5. Automate Manual Contract Communications
If you email or ship contracts back and forth through posts with partners, you are following an outdated practice and taking on too much risk. Sending through email and post can cost you time and money.
A cloud-based, central repository system provides multiple points of contact and access to contracts simultaneously. A cloud-based repository system and its tools can also offer team collaboration and easy discussion since all parties or groups can have access to the same contract version immediately. Additionally, setting an automated reminder to essential parties eliminates the risk of forgetting one group’s address on a group email reminder.
6. Keep a Close Watch on Finances and Metrics
Saving costs is a top goal for companies with a contract management system. Cost savings can come from anything, including more informed negotiations, better supervision of contract performance, and a lower incidence of auto-renewals.
Leading contract managers create financial metrics as a dedicated routine in contract management reviews. Make sure you include financial executives on a regular update schedule that can suit your company’s needs to compare contract performance to your organization’s budget expectations.
7. Conduct Regular Compliance Reviews
Compliance is a critical area to routinely check in on in your contract review and management process, plan to review two significant contract compliance categories–federal, state, and local regulations, and compliance within the contract.
Many organizations adhere to governmental, industry, and other external regulations. Failing to do so may result in fines and penalties. For many, a business license may be at stake if there is a severe breach of compliance. Protect the company against risk by using automated contract management that includes a full audit trail to ensure you can track everything happening in your system.
It is also essential to track and manage compliance with the contract terms to ensure you are getting the goods and services you have paid for during the life of the contract.
8. Resolve Disputes Promptly
Thorough reviews are only as good as your organization’s action to resolve any problems the contract managers find. Preparing for a formal dispute process and having a more proactive response to contract disputes can lead to cost savings and performance improvements.
9. Anticipate Evolving Business Needs
Each contract’s needs do not necessarily remain the same five, ten, or even two years down the road. Successful contract management requires you to take a long-term view of an organization’s demands and capacities. Make sure you plan to address fluctuations in demand and any upcoming changes to ensure the business’s current relationships will not be affected.
Providers may reach a point where they find it difficult to scale new requirements. The financial office within your organization may not understand which costs to factor into the operating budget without a clear reassessment.
To get ahead of this challenge, it is imperative to use a flexible contract management platform that can quickly respond to changing business needs, supply chain issues, rising demand, and more. This is where no-code contract lifecycle management shines since it allows business users the ability to configure the software as business needs change instead of spending lots of time and IT resources to develop new templates or workflows, which may take months or even years with traditional, code-heavy software.
10. Compare Contract Trends Against Market Insights
Another benefit of consistent contract management is that your company will be better positioned for negotiations to go in your favour. With modern contract management, you can use the best practices of market intelligence tracking on vendor pricing, technological developments, and other standards that apply to vendor and client relationships. During the negotiation window, before renewing a contract, review the contract to determine if the terms are still a competitive advantage over your current market.
Contract management best practices are not limited to the above. We found the Project Practical article of good use on best practices for effective contract management.
Implementing Contract Management Best Practices with Agiloft and Adaptive
Use contract management best practices to improve your revenue and portfolio-landscape by integrating contractual data and information into your core activities. By using these best practices with a streamlined contract management system, you can save a lot of money across the organization. Poor contract management can cost a company significant amounts of money in annual revenues, expose it to risk, and reduce morale in procurement teams or legal departments. For example, once a contract is signed, there is often a relaxed attitude toward responding to concerns later rather than proactively addressing them, which can result in revenue losses and the loss of jobs.
Having good contract management practices results in cost savings, long-term relationships with contractors, and ideal project execution.
Agiloft offers contract lifecycle management software that automates the manual workflows associated with initiating, executing, and monitoring contractual agreements. Implementing contract management and monitoring system provides you with significant business savings in purchasing, enables more efficiency in sales cycles, and drastically lowers compliance risk.
Agiloft has successfully achieved its second year in the Gartner Contract Lifecycle Management leader’s quadrant. Users are getting value out of Agiloft’s flexible contract lifecycle management software. As the only no-code CLM platform that also provides open AI capabilities, Agiloft integrates with enterprise systems and is easily extensible to the commercial processes adjacent to contracts, allowing organizations to simplify the intake and organization of existing contracts and to customize the most complex workflows—all without writing a single line of code. To read a copy of the 2021 Gartner CLM report, please access it here.
Adaptive has extensive experience leveraging Agiloft’s capabilities to deliver the contract management best practices discussed above. Our expert team of Agiloft consultants has successfully delivered several projects for both seasoned CLM users and new technology adopters. Let us review your current CLM processes and help guide you towards greater contract management effectiveness.