For organizations across the globe, contracts are crucial tools in defining and maintaining relationships with clients, businesses, vendors, and other stakeholders.
How a business manages its contracts affects everything from risk mitigation to regulatory compliance, operational efficiency, and revenue and profits. McKinsey & Company found that “suboptimal contract terms and conditions combined with a lack of effective contract management can cause an erosion of value in sourcing equal to 9 percent of annual revenues. For Fortune’s 2016 Global 500 companies, this 9 percent would have equaled $2.5 trillion in value.”
Yet relatively few businesses invest significantly in tools and practices to optimize their contract management process.
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 automations 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 spend.
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 to quickly find and access specific contracts, templates, or clauses. The accessibility and security of a digital repository means 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 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
The more hands a contract passes through manually when going through approvals, the more time the process can take. There is also an increased risk for mistakes in compliance and other issues that lead to unforeseen costs down the road. Almost all management principles and practices have the quality of helping reduce risk, and successful contract management reduces risk while facilitating a speedier, more efficient process.
CLMs helps you meet your management goals by automating complex workflows for sequential, parallel, and conditional approvals. You can also more easily manage workflows with outside parties and streamline reviews with redlining and version control, as well as the secure digital signing of contracts. Automated alerts and workflows allow contracts to be managed at different stages by personnel across departments such as procurement, sales, and legal.
Proactively watch your contracts
Often, too little focus 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. 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, for HIPPA, SarbOx, GDRP, and others, 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. Domestic and international regulations can evolve over time, and organizations must be able to adapt the language of their contracts into 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. Agiloft provides AI-driven CLM software for more effective management at every stage of a contract’s lifecycle. Try Agiloft for free today.
To explore how a CLM can benefit your organization, schedule your free consultation or customized demo here or by contacting us at +1 650 459 5637 or firstname.lastname@example.org.