Contract management is maintaining agreements digitally with vendors, customers, and employees. This management entails managing, creating, archiving, and sharing business contracts. It also allows in-house legal and users to get business intelligence from these contracts.
When used correctly, this management saves time, extracts insights, and saves time. A contract lifecycle management takes the contract management concept to the next level. The inclusion of the word “lifecycle” means end-to-end contract management in the entire process. Let us dive right into everything you need about the contract management system.
Why Is Contract Management Essential?
Contract management is essential because it oversees the delivery of preferred procurement outcomes. Contract management might consider several factors, like;
- Performance management
- Quality assurance
- Driving continuous improvement
- Additional value creation and value preservation
- Risk mitigation.
Poor management leads to friction between parties, and a lack of velocity can harm an organization’s ability to close deals. Poor lifecycle management makes an organization miss essential dates, causing costly renewal costs. The main aim of contract management is to create a record system to avoid this risk.
Contract management affects your company’s budget, revenue, and operations. It also significantly impacts how your clients view you and your image. Below we discuss how good contract management affects your enterprise;
- Improves the process of generating, signing, negotiating, and renewing contracts
- Creates good relationships with vendors and partners
- Ensures your suppliers cooperate and respond to your needs
- Increases revenue as you can streamline the implementation process
- Enhances long-term profitability
- Supports commercial management since it helps you meet all legal commitments
- Ensures strategic decision-making since you can easily see your areas for growth.
The Contract Management Stages
Contract management features all business operations. An efficient and consistent management process guides each contract’s management and modifications. Below we discuss the main contract management stages;
Favorable quotes or discussions with a potential vendor or business partner will initiate the request for a legal contract. Business owners should focus on the contract’s reasons and decide if both parties can meet the terms.
They should also ensure the senior management supports the agreement and partnership. Doing this ensures you avoid roadblocks in the end stages or end the project because it does not meet the management’s goals.
Below we make a list of tasks to be completed in the initial stage of preparing a contract;
- Identify the partner’s needs
- Set expectations
- Establish the project’s goals
- Know the contract’s background
- Define, identify, and point out the risk-mitigating tasks
- Identify key contacts and documents to support the contract.
It will help to research the project’s purpose when creating a draft. You might also consider gathering documents early to ensure you have the necessary context to generate a contract.
Remember, contracts change in negotiations, meaning all sides should settle for a flexible draft. The best draft policies include;
- It should be based on the contract request information
- It should entail all necessary documents like terms, clauses, etc.
- Should use specific wording.
Negotiations should commence with transparency and trust so that all parties can have the best solution possible. Negotiators break the contract’s terms using playbooks in most instances, and below, we discuss a few negotiation steps;
- Share the draft with internal stakeholders
- Review the draft’s feedback
- Negotiate the terms and conditions and determine the best result
- Document all changes to the contract
- Finalize the changes using a letter of understanding.
You can proceed to get final proposals after everyone agrees with the contract’s terms. However, you might need to include your department, but this depends on the scope and size of the contract. Business owners might also experience another bottleneck when seeking approval, and they can avoid this by ensuring the policies meet the approval process.
All parties should sign the approved contract to finalize the deal. This stage is essential as it makes the contract go into effect. Everybody should know how the contract works by this stage, and the process can be made simpler by using e-signatures.
Next, the agreement’s copies should be shared with all parties and stored securely.
Everybody’s source of truth is included in the project, and all contracts have a data storehouse that can be used to expand an enterprise. Gather all documents in a central system for easy tracking. You will enjoy the following benefits by organizing your documents;
- Easy access to records in complex situations
- Tags important keywords for easy document retrieval and search results
- It stores them safely to prevent cyber-attacks or theft
This stage occurs after all parties agree on the terms and guidelines. Failure to meet these performance measures might cause a contract termination.
Contract management has become popular in organizations, and it is hard not to see why. It has many benefits, and the above article has discussed all you need to know about it. Kindly reach out for more information.