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6 Actionable Principles of Effective Contract Management

contract management,contract lifecycle management software,contract software, Adaptive Dynamics

Automate audit trails to ensure compliance throughout the contracting process with a contract lifecycle management tool (CLM)

Contract lifecycle management is how an organization oversees its contracts and related legal documents. The CLM tool streamlines and automates the process of managing contracts with customers, vendors, and stakeholders.

The way a company manages its contracts impacts everything from risk mitigation to regulatory compliance, operational efficiency, and revenue generation. Without effective contract management, sourcing can lose value.

Companies find themselves dealing with increased volumes of contracts. Poor contract management can be a real problem if you do not know how to handle them better. More contracts mean increased chances of non-compliance with contract obligations, which can lead to revenue loss. Few businesses invest significantly in improving their contract management process.

Contract management software automates the workflows associated with initiating, executing, and monitoring contractual agreements. Implementing a contract management system offers businesses significant cost savings in purchasing, enables more efficient sales cycles and drastically lowers compliance risk.

Contract Lifecycle Management (CLM) software is a tool that allows organizations to digitally optimize the way contracts are managed at each stage, providing a secure centralized repository of contract data across multiple departments and personnel. Streamlined workflow automation and other features make it easier to request, approve, and maintain contracts.

These features can greatly improve the overall project management process. By combining the use of CLM and the most effective contract management principles, organizations can optimize outcomes, minimize turnaround time, and reduce risk and spending.

According to research conducted by the International Association for Contract & Commercial Management (IACCM), the average company loses about 10% of annual revenue due to poor contract management practices.  Here are some effective contract management principles to help you save cost and stay compliant:

Consolidate your contracts

Disorganized filing systems or contracts spread across systems mean more time and resources spent tracking down vital information in contracts. It also means a higher chance personnel may miss obsolete or underperforming elements of contracts, risk compliance issues, and make tracking performance and optimizing renegotiations difficult. Consolidating your contract portfolio into a centralized repository helps avoid these issues.

A contract management software system provides a secure digital repository that lets all concerned parties quickly find and access specific contracts, templates, or clauses. The accessibility and security of a digital repository mean controlling visibility and access, preventing data breaches, and being able to easily track performance to meet company KPIs and improve negotiations.

Cut the time required to create a contract

The drafting of new contracts takes time, and contracts may evolve during negotiations or if they are renegotiated at the end of their lifecycle. Contracts can also pass through the hands of multiple personnel throughout the departments of an enterprise. Yet multiple contracts may share certain standardized language and terms.

An important goal of effective contract management is for personnel to spend less time drafting and approving contracts, with improved workflows and fewer mistakes. CLM provides automated systems for authoring and approval of contracts to achieve these performance goals. Some important features include contract templates and clause libraries with customizable language managed across multiple contracts.

Forecast expenses and revenues

Contracts should be tracked in a way that allows for effective forecasting of revenues and expenses. Accurate forecasting is crucial for operational efficiency and maintaining the trust of stakeholders, as well as building detailed growth projections. However, building these forecasts based on each individual contract takes time and resources that could be spent achieving other important tasks and goals.

A contract management goal should be to create these forecasts accurately and efficiently. CLM software can generate reports based on custom metrics and analytics, as well as provide insights into the renewal process.

Automate and integrate the contract workflow

A contract’s approval process can take longer if it passes through more hands manually. Additionally, compliance mistakes and other issues may lead to unforeseen costs in the future. Successful contract management reduces risk while facilitating a faster, more efficient process, and almost all management principles and practices have the quality of reducing risk.

Using the CLM tool, you can automate complex workflows for sequential, parallel, and conditional approvals. Also, with redlining and version control, as well as the secure digital signing of contracts, you can more easily manage workflows with outside parties. Contracts can be managed at different stages of their lifecycle by personnel from various departments such as procurement, sales, and legal thanks to automated alerts and workflows.

Proactively watch your contracts

Often, too little time is spent managing contracts after they are approved. Yet effective tracking and reporting of contracts throughout their lifecycles can lead to reduced risks and the opportunity to identify underperforming or obsolete contracts. This lets you identify ineffective language or elements to improve in future negotiations and helps you determine when obsolete contracts should be terminated.

CLM automation ensures all relevant team members can perform crucial tasks in a timely manner and that deadlines and other important terms are met, better preparing an organization when contracts must be renewed or ended. You can also use contract management software to track multiple contracts’ terms and obligations with the same party for improved renegotiations. The software helps you better meet the performance expectations of the organization and its clients and stakeholders.

Keep a full audit trail

Compliance is a major consideration for any organization’s contract management goals. Compliance issues caused by manual audits of contracts can lead to costs from fines and damaged reputations. Creating the audit trails required to meet these regulations is a time-consuming process, and it’s extremely important to avoid mistakes.

An effective CLM software tool can help you manage an automated audit trail to maintain compliance across all contracts. Organizations must be able to adapt the language of their contracts to their project management processes. CLM allows monitoring and seamless transitions to ensure compliance.

By focusing on the principles of effective contract management and integrating the right enterprise-level CLM software, a business can reduce the cost of contract management, manage risk and compliance, and otherwise meet performance goals. Adaptive provides AI-driven CLM software for more effective management at every stage of a contract’s lifecycle.

At times, it takes a crisis for executives to realize the risks associated with operating without a robust contract lifecycle management (CLM) system. Lax access controls, missed deadlines, compliance failures, inefficient approval workflows, and ineffective reporting can result in severe consequences. Poor CLM can also cause a subtle, steady erosion of profitability.

We share some risks that can be caused by ineffective contract management processes:

Lax access controls

It seems obvious that only people and entities that need access to information should have access, but many companies don’t precisely spell out access restrictions. Excessive access can lead to unscrupulous employees mishandling information or walking away with valuable intellectual property, pricing information, or confidential customer and employee data. Far more organizations have suffered from data theft by their own employees than by outside hackers.

Today’s best CLM software prevents this with granular permission controls that provide precise view and edit access by user group, including dynamic filters to address the specific access needs of different departments, divisions, teams, and employee classifications. The best systems allow extensive configuration of multi-layered access controls that securely compartmentalize data to address the unique needs of the organization.

Missed deadlines

Licensing agreements typically restrict the amount of time that a company can use intellectual property belonging to another party. If a company allows the agreement to expire accidentally or deliberately but continues to use the product, it opens itself up to liability risk. On the other hand, if a business sets up an auto-renewal and loses sight of it, then it could be paying for a service it no longer needs.

A company that licenses out the intellectual property (IP) must also stay on top of these windows of access. Otherwise, it loses revenue every day that it doesn’t notice a contract expiration. And if it’s providing service to customers who no longer have valid support contracts, it’s losing even more.

Some contract management systems actively help prevent these problems. In contrast to those that have repository-only functionality, these solutions can proactively track contracts and alert staff of upcoming deadlines, so the organization can protect its business and optimize revenues.

Compliance failures

Businesses spend considerable resources on problems like rogue spending and regulatory compliance. But in many cases, people still fall short of delivering contractual obligations promptly. As Facebook discovered, incorporating ways to track compliance with contract terms is just as critical. A well-thought-out CLM system requires contracts to meet specific conditions as they move through the approval process and can also log events and actions as they occur, automating compliance documentation.

For regulatory compliance, a CLM solution helps audit current contracts to ensure they have the appropriate clauses related to data privacy, arbitration, confidentiality, or other regulations that affect the business. The legal team can be automatically notified to fill in any gaps, update the contracts with the appropriate language, and contact third-party signatories.

For operational compliance, a CLM solution helps ensure that contracts clearly define performance obligations that the system can track and manage. A simple example is payment terms: though most companies have payment due dates in their contracts with penalties for missing the deadline, many fail to track those late payments, let alone enforce the penalties. On the supply side, one of the most common forms of operational non-compliance is overpaying due to not keeping track of volume or other discounts negotiated in the contract. Automated CLM prevents both issues from occurring.

Inefficient approval workflow

Approval workflow issues can delay and even destroy deals. If an approver is on vacation or doesn’t see a time-critical email, it can derail time-sensitive deals. Even if there isn’t an explicit time deadline, approval bottlenecks cause disruptions in deal flows that result in frustration and lost business.

A robust contract management system reduces friction by automating complex contract approval routing, including sequential, parallel, and conditional approvals. The best systems intelligently nudge, route, and escalate approval requests to ensure that an unnoticed email or a vacation doesn’t cause the process to grind to a halt. It’s the digital age, so legal e-signature capability provided by integrations with DocuSign and Adobe Sign is no longer optional.

Ineffective reporting

Executives need company-specific, KPI-driven reports that give them advance notice of potential problems before they become disasters. A lot of contract management software emphasizes the repository or content management function. The problem with this approach is that if data is not actively turned into actionable reports, vulnerabilities tend to remain undetected until there’s a problem.

The best contract lifecycle management (CLM) software offers fully configurable reporting across business owners. For example, the legal team may want to see the overall risk profile of all contracts and flag problematic ones; the operations team may want to see how well contracts move through the lifecycle and highlight obstacles; and sales leaders may be interested in upcoming revenue opportunities and important contracts that are up for renewal.

Adaptive has extensive experience leveraging Agiloft’s capabilities to deliver the contract management principles discussed above. Our expert team of consultants have successfully delivered several projects for both seasoned CLM users and new technology adopters. Let us help you review your current CLM processes and help guide you towards effective contract management. To learn more about contract lifecycle management software, visit our contract management product page, or click here to request a demo of Adaptives’s flexible contract management solution.



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