Contracts – The Cornerstones Of Commerce

In day-to-day life in any organization, contracts and agreements play a huge role in carrying out a deal. Organizations typically spend an inordinate amount of resources and manpower to ensure that contracts are carefully drafted, effectively negotiated, securely stored, and accurately performed. This degree of care is not unwarranted, as contracts are the cornerstones of business and the key to a successful deal. 

Adherence to regulations is another crucial area where contracts play an important role since they specify the roles to be performed and services to be rendered by the parties entering the contract. 

Due to these reasons, firms must ensure that their contracting procedures remain seamless and, to a certain extent, flawless and devoid of loopholes or blind spots. Additionally, the non-compliance fines and loss of reputation caused by inefficient contracting procedures create a further impetus for businesses to streamline their already complex contracting processes.  

Contract management offers a cost-effective way for businesses across segments to improve their contracting using contract automation technology. 

What Exactly Is Contract Management?

Contract management, simply put, involves overseeing contracts as they’re drafted, negotiated, signed, and performed. Business deals are formalized as contracts, and the effective supervision of the procedures followed by businesses as they agree on and execute the terms of said deals is crucial for any business. Additionally, well-managed contracts enhance the efficiency and profitability of a company and minimize the risks associated with partnering with other businesses.

Document management is time-consuming, necessitating an efficient and automated contract management system. Such systems gained prominence at the turn of the century with legal firms who began leveraging well-managed and planned digital infrastructure to streamline their contracts. 

As automation permeates every aspect of the corporate sphere, businesses need to understand that contracting no longer involves merely filing paperwork. Contract automation platforms now allow businesses to track and essentially know everything about their contracts and even analyze contract performance to gain insights for enhanced business decision-making. 

Organizations, from corporate enterprises to NGOs and educational institutions, are now using contract lifecycle management to improve their performance and better understand how to achieve their goals.

What, then, does contract management involve in the context of organizations? 

The Steps Involved In Contract Management Services

The contract management process involves various steps corporations utilize, spanning every stage of the contract’s lifecycle. To execute a contract correctly, firms must implement these mandatory steps. The stages of contract management are as follows:

contract management procedure and steps

  • Commencing Request:

Identifying relevant data to support the contract’s purpose is the first step in the contract management process. Businesses need to have all the necessary information relating to the transaction to initiate its documentation effectively. 

Good contract management sourcing demands a clear understanding of the contract’s goals, identifying requirements, and addressing contingencies. All these aspects are essential to creating a valid contract. 

  • Composing the Contract:

Drawing up a contract involves detailing all the terms and conditions of the transaction. The step involves providing clear detail about everything related to the particular business transaction, such as 

  • The pricing and payment details.
  • Contract termination specifications.
  • Non-liability clause.
  • Dispute resolution clauses.
  • Delay or fault consequences.
  • Provision for signatures from the parties involved. 

In addition, the content of a business contract also includes mentioning the contract’s title and purpose, specifying the parties involved in the transaction, describing the contract’s subject or purpose, and the date and time of implementation of the deal. 

  • Contract Negotiation:

Every party and stakeholder involved in the deal should be able to compare copies of the contract after writing it. The provision for negotiation facilitates this requirement and helps mark any inconsistencies to save discussion time. 

Further, parties can settle through negotiation when there are differences in opinions. This step ensures the project flows smoothly without facing any obstructions when all the terms of its contract are satisfactory to the parties involved. 

  • Contract Approvals & Signatures:

After a contract has been drafted, it must be approved by various people and parties to implement it. The organization will run the contract past each business stakeholder for evaluation during the contract approval stage. By signing the contract, parties show their approval of its contents, thereby initiating the deal’s execution. 

Businesses need contract management resources with tailored approval process flow to expect it to be approved without delays. The contract must pass through business hierarchies to obtain approval from the required teams and stakeholders. 

  • Implementation of the Contract:

The usage of signatures allows businesses to aid a contract’s official execution. It is amongst the simplest steps of contract management in which all the parties involved agree to the terms and conditions of the contract and facilitate its implementation. 

Signatures regulate the implementation of a contract, and the presence of stakeholders and parties across the globe brings in the need for a remote contract signing facility that can help firms execute their contracts without spending too much time or money. 

  • Maintaining Audits:

In this stage of post-execution of a contract, the parties ensure they achieve what they had committed to, keeping in mind the time, performance, and monetary aspects through periodic audit trails. 

Apart from that, the audits help check the potential risks that can affect the contract. Regular audits can help expose threats, saving the business from incurring huge losses in the upcoming days.

  • Renewals and Termination:

Business contracts must be renewed after they expire when the project is not completed on time, or there is a requirement to run it longer. In such cases, the parties’ existing agreement must be renewed. The process can also need a few amendments to be made to the earlier version to facilitate newer requirements. 

Sometimes firms may also require the need to terminate a collaboration with a client due to unforeseen circumstances. This will require them to terminate the contract formally by providing a legitimate reason. 

Frequently Used Business Contracts That Require Effective Contract Management 

Teams involved in business contract management come across various types of contracts that cater to different business requirements. 

A cost-plus contract is one in which the contractor is paid for all of their expenditures and an additional payment to allow for profit. Going by the term, cost-plus denotes anything besides the cost of executing the contract. The final cost of these contracts is not known in advance and may change throughout the course of the project. 

A fixed-price contract is a contract in which the payment amount is not determined by the contractor’s usage of resources or time. The entire cost is typically paid at the end of the task, but certain amounts are paid at intervals if the project is lengthy. Sellers carry the majority of the associated risk.

Contracts for time and materials are another category. This is a more flexible arrangement in which the client is billed for the time it takes to finish the service and the materials utilized. Time and materials contracts are often employed in construction project management but are also utilized in product development and other projects.

These contracts have to be closely monitored and executed with clarity to complete the project without inviting problems. Well-thought-out and structured contract management strategies enable businesses to take care of the process effectively to aid a seamless project flow right from its start.  

Why Is Contract Management Important: The Benefits Associated With CLM?

A contract describes the actions undertaken by participating organizations and the circumstances under which they will each perform their portions of the agreement when two or more parties seek to conduct business with each other. 

Reports suggest that ineffective contract management costs businesses 9.2 percent of their revenue. The report further states that by 2023, 40 percent of I&O teams in big companies will adopt AI-augmented automation, resulting in increased IT efficiency with more agility and scalability.

The various ways in which contract management can be beneficial to businesses are:

contract management importance

  • Efficient Spends & Time Saved 

Contracts significantly impact corporate performance due to the emphasis on income and costs. However, contracts are costly to establish and manage. Contract management aids in cost control, payment and revenue oversight, productivity improvement, and mistake reduction. Furthermore, it gives the knowledge and tools to effectively utilize outbound contracts while adhering to their inward contractual commitments.

  • Limits Operational Risks:

Enforcing a contract and operating according to its terms limits the scope of risks in terms of operations. This enhances the overall controls and compliance with regulations and helps the business meet the expectations defined in the contract. Effective contract management services monitor the process from start to end, thereby assisting in identifying high-risk zones.

  • Accelerated Contract Creation:

Contract creation becomes quick and easy when a structured management process is attached. Effective contract management makes creating a contract with relevant clauses and terms faster. 

  • Well-Organized Contract Storage:

With a structured storage solution, firms can ensure all their contracts are stored in an organized manner. Such a storage method can make retrievals quick, enabling ease in accessing the required document within no time. 

  • Enhanced Contract Protection and Privacy:

Through continuous vigilance, businesses can keep all the information on contracts safe from intruders. Efficient document management practices can help protect documents and their data. 

How CLM Technology Solves Contract Management Challenges

Manual contract management techniques can lead to chances of missing key contract milestones missed out, which eventually will lead to loss of revenue, reputation, and business. A business can find new growth opportunities and create policies within the stipulated time by automating the process of document management.

It is not enough for a company to have contract management specialists on staff. To meet growing compliance and requirements, employees must be reinforced by the presence of procedures and technology-enabled tools that can help them improve their contract management skills and techniques to enhance workplace productivity.

A few essential components of an effective contract management system include the following features and functionalities: 

  • End-to-end contract management
  • Online negotiations via redlining 
  • Pre-defined user roles
  • Intelligent approval matrix
  • Pre-configured templates & clause library 
  • Clause locking and tokenization support
  • Automated clause suggestion 
  • Digital signature integration
  • Virtual audit trail facility
  • Access-controlled contract repository
  • Timely reminders and renewal alerts

Creating digital workflow procedures is the way forward for companies, with many already taking the required steps toward automation and efficiency. Contract workflow automation allows organizations to automate most of the stages in a contract, increasing the procedure’s efficiency and freeing up time for in-house departments and team members to work on other tasks.

Contract Management Within Key Sectors: Which Industry Segments Require Automated Contract Management?

Contract management technology is an important aspect in almost all industries. As mentioned earlier, contract management helps in managing contracts until their completion. Companies across industrial sectors need a well-planned contract management solution to carry out the process efficiently. The industries that require contract management the most are –

  • Pharmaceuticals:

To ensure that operations run effectively, the pharmaceutical sector relies extensively on external vendors and suppliers, medication research and testing companies, hospital representatives, liaison officers with regulatory authorities, and various stakeholders.

Contracts govern the relationship between a pharmaceutical business and any of these stakeholders. As a result, contract management is critical for businesses in this industry. 

  • Finance:

Contract management enables finance teams to work together effortlessly while creating or negotiating finance-related documents, increasing efficiency and speed. Through the use of smart contract management, financial services can observe several benefits across the company’s various divisions. 

Furthermore, adopting automation in contract administration allows for faster searches, retrievals, and clear categorization of the institution’s many documents.

  • IT: 

The IT industry is growing at a rapid pace, and the need for contract management is essential in this business segment. Contracts span many use cases, including custom software documents requiring extensive trackability and accuracy. Slow turnaround times and lack of visibility make operations in this sector complex. 

The IT industry can better manage its large-volume and routine documentation process with an AI-based contract management tool. The tool enables faster completion of contract execution and ensures its status is visible across different teams throughout its lifecycle. 

  • Insurance 

The insurance sector incurs a multitude of contracts every day. It includes documents such as life insurance contracts, home insurance documents, automobile insurance contracts, contracts of indemnity, and health insurance contracts, among many others. 

Smart contract lifecycle management can enable better collaboration between insurance providers and their clients, facilitating smooth process flow and faster contract closures. The platform also makes it easy for insurance firms to comply with industry policies and legal regulations. 

  • Education:

The educational sector has to deal with multiple types of contracts, such as outsourced trainer agreements, contractual teacher employment, government aid contracts, institution affiliation contracts, etc. A typical contract management system could no longer meet the demands of today’s educational institutes. As the industry transitions, it must implement a cutting-edge digital contract administration system. Such a system would be a worthwhile investment in addressing existing contract management issues and serve as a strategic instrument for achieving the organization’s goals. 

Furthermore, an intelligent contract management system provides superior security to guarantee that important data within the firm is never compromised. It would uncover the actual value of contracts by accelerating their lifespan. These benefits make it critical for an educational institution to implement an intelligent contract system as soon as possible since delays would exacerbate the disadvantages of a traditional system.

  • Construction:

Construction contract management is crucial for all parties involved in a building project. Individuals frequently ignore its significance, regarding it as just a commercial transaction and ignoring that this arrangement involves real people with true thoughts and emotions.

Businesses must also understand that properly managing a construction contract is crucial to their success as a contractor. The ability of the construction management team to use contracts to manage construction projects is one of the many valuable services it provides. 

  • Retail:

Companies must understand client preferences while ensuring supply chain stability, adhering to quality standards, and managing warehouse and workforce resources. The necessity to involve various stakeholders at the same time while honoring all fundamental commitments complicates the process.

This demands the need for a technology-driven contract management approach that can streamline the various procedures entailed in the retail industry. 

  • Manufacturing:

Suppliers are an essential part of the manufacturing business. Onboarding new suppliers becomes increasingly frequent as firms develop in size and scope, often daily. Given their importance, shorter contracting turnaround times and more effective supplier onboarding directly influence revenue and customer satisfaction.

Bringing on a supplier entails conducting extensive due diligence to analyze the risk associated. It also requires keeping the new supplier current on the organization’s legal, financial, and quality standards. Signing a contract with a new supplier requires a significant investment in risk acceptance and resource commitment. Contract management in procurement allows for easy collaboration while avoiding delays and cost overruns.

In addition to these industries, certain business teams need a streamlined process flow to manage their contracts more productively. HR teams, legal departments, finance teams, and sales teams require a reliable contract management process to carry out their activities easily. By employing legal contract management techniques, these departments can add efficiency to their document creation and execution processes.  

SignDesk’s Contract Management Solution

Introducing technology such as automation has substantially enhanced the contract management process. Automation includes management software that generates feasible answers to challenges that have previously plagued the operation.

SignDesk’s end-to-end contract management tool allows you to draft contracts and negotiate provisions in real-time. SignDesk is among the leading contract management companies, and it offers simple yet practical feature integrations like eSignature, smart contract clause suggestions, pre-made template libraries, timely notifications, and automated renewals for executing contracts quickly and securely. 

The suite of features provided by SignDesk helps businesses add efficiency to their contract management workflows. Managing bulk contracts and providing a streamlined processing procedure while cutting TAT by 90% is possible through SignDesk’s e-contract management platform. 

Get in touch with SignDesk to learn how you can manage contracts the smart way with a free on-demand demo.  

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