The ultimate guide to improving contract management

Contracts are a vital (and unavoidable) part of doing business. Contract management often means balancing many moving parts, from drafting to renewing. This often-overlooked function can streamline processes, safeguard business interests, and ensure compliance, while ineffective contract management can lead to legal risks, contract breaches, and financial loss.

Learn how to improve contact management and get maximum value from your agreements.

What is contract management?

Contract management involves overseeing contracts from initiation to renewal or termination. Contracts form the foundation of business relationships with suppliers, employees, customers, and more. 

The contract management process advances the contract through each phase of its lifecycle. Errors can expose organizations to liability and other risks. Effective management is critical to mitigating these risks. 

Stages of contract management

Contract management has eight distinct phases:

1. Request and initiation: In this first stage, a business approaches a vendor or partner. After agreeing to enter into a contract, the parties must capture the relevant details. This step involves identifying stakeholders and gathering requirements. 
2. Contract generation: The issuing party drafts a contract based on the agreed terms. Customizable contract templates make the process easier. Contracts created from scratch need legal input. 
3. Review and negotiation: The contract goes through multiple revisions during this stage. Collaboration is crucial during negotiation. An effective agreement is beneficial to all parties.
4. Approval: If all parties agree to the terms, they sign the contract. They are now legally bound to the written agreement. 
5. Execution: When the agreement starts, the parties must uphold their obligations. Failure to do so can result in termination, noncompliance penalties, or legal consequences. 
6. Obligation and compliance: Effective contract management ensures all parties meet their obligations. This phase includes tracking performance, monitoring compliance, and addressing potential issues.
7. Renewal or termination: The contract may be in place for a set period or have the option to renew. During renewal, the parties review the agreement and renegotiate if necessary. In the case of a single execution, the contract expires, and obligations stop.
8. Record keeping: Secure and organized contract records are crucial for compliance and future needs. Relevant stakeholders need centralized, easy access.

The importance of contract management

The importance of contract management

Contract management contributes to effective agreement execution and business goal achievement. An EY Law and the Harvard Law School Center study found that over 50% of organizations lost business due to contract process inefficiencies. 

An effective contract management strategy:

Collects data: Data collected through contract management provides valuable analysis and reporting opportunities. Based on performance metrics, organizations can make better decisions. 

Mitigates risk: Contracts have risks, such as compliance issues, liability, and disputes. Management at each stage helps to identify and mitigate possible risks. Ongoing monitoring helps prevent legal problems or penalties. 

Controls costs: Proper contract management tracks expenses and ensures adherence to payment terms. This cost control maximizes contract value for better financial outcomes. 

Ensures compliance: Robust contract management ensures compliance with terms, laws, and regulations. In some industries, noncompliance may incur strict penalties. Contract compliance means all parties fulfill their obligations to avoid negative consequences.

Improves efficiency: An efficient management process can speed up contract turnaround times. Implementing automated contract management further streamlines the process. 

How to improve contract management

Improve contract management by adopting best practices, using technology, and encouraging collaboration. 

Here are some simple tips to amplify your contract management processes:

1. Standardize processes

Consistency is key, especially for many contracts across varied stakeholders. Develop standardized templates and processes for each contract stage. Standardization saves time, simplifies compliance, boosts efficiency, and minimizes errors. 

2. Centralized document storage

Organizing contracts in a central repository keeps them searchable and easy to access. You may need to pull up an old or updated contract at short notice.

Data centralization and protection go hand in hand. In today’s digital age, data security is more than a nice-to-have. Sensitive data storage must follow privacy regulations and protect against breaches. 

3. Establish roles and responsibilities

Contracts often require involvement from different stakeholders. Legal teams, supply chain managers, or compliance officers may have a role to play. Establishing clear roles in contract management holds parties accountable throughout the lifecycle.

4. Track approvals and changes

An agreement may go through multiple reviews and approvals. Existing contracts may change through evaluations and renegotiations. Document all changes, including amendments and renewals. 

5. Establish key performance indicators (KPIs)

KPIs measure progress toward intended objectives. These help assess if a contract performs as intended or requires corrective action. KPIs for contract management can include pricing, information security, and contract terms. 

6. Focus on risk management

A proactive approach to risk management avoids legal or compliance issues. Identify risks early in the contract process and develop mitigation strategies. 

Track and assess risks throughout the contract term. Regular reviews or audits can address minor issues before they escalate.

7. Foster collaboration and communication

Contracts may require collaboration between different departments or stakeholders. To optimize contract management and avoid misunderstandings, encourage a culture of clear communication.  

8. Set up contract reminders

Key dates, such as compliance reviews or renewals, can creep up on you. Automated alerts can remind you to take action and prevent missing deadlines. 

9. Leverage analytics and reporting

Organizations can ensure compliance, control costs, and identify risks through contract management reporting. Robust reporting may target previous weak areas, like project delays or slow negotiations. 

KPI metrics and analytics offer high-value insights that determine a contract’s success. Decide how to monitor the contract, how often to report, and the metrics you wish to measure. 

10. Use a Contract Lifecycle Management (CLM) platform

Luckily, technology exists to achieve all the above with a single, easy-to-use tool. CLM platforms automate and streamline each stage of the contract process. 

Here’s how CLM platforms solve many of contract management’s challenges: 

• Centralized repository: A CLM platform provides an effective way of organizing contracts with added visibility. This “single source of truth” has all contracts in one location. Authorized parties can view and access contracts without sacrificing data protection. 
• Automates workflow: CLM platforms save time on manual reviews and approvals through automation. 
• Monitors contract performance: CLM platforms generate reports and analytics for valuable contract insights. 
• Manages renewals: A CLM platform sends automated reminders for important dates, eliminating the need for manual alerts.
• Provides standardized templates: Customizable templates make contract consistency easy. A clause library speeds up and improves the drafting process. 
• Protects sensitive data: Robust CLM platforms restrict unauthorized access using security controls.
• Integrates e-signature approval: E-signatures allow fast, reliable, and secure contract execution. Once signed, the CLM platform stores the contract.

Once you see how easy contract management is with a CLM tool, you’ll wonder how you managed without it.

A last word on contract management

Enhancing your contract management strategy involves embracing the right tools for greater efficiency. By following best practices, organizations can streamline workflows and drive better results. Effective management is a strategic advantage that can build better business relationships. With these insights and a CLM system, you’re on track to unlock contract management’s full potential.

Discover how Agiloft technology can enhance your organization’s contract management. Schedule a custom demo of our industry-leading CLM platform today.