The Principles of Contract Management

Modern contract management requires robust, streamlined processes. Advanced contract management helps teams track contracts on a centralized platform, accelerate the drafting process, secure data, and ensure the necessary departments can easily access contract information. Technology and management strategies automate time-consuming tasks, freeing departments to focus on high-priority projects.

Effective management minimizes legal exposure and reveals priceless information that informs future contracting decisions. Organizations can refine their strategies, draft robust agreements, and ultimately accelerate revenue growth by analyzing contract data and outcomes.

7 core contract management principles 

Contracting professionals must master foundational principles to fully realize the advantages, including shielding their organizations from preventable issues and positioning themselves to seize new business opportunities.

These seven fundamentals are the pillars that transform contract management from a time-consuming task to a strategic opportunity. Many contract administration best practices embody these standards.

1. Centralization

Information scattered across emails and shared drives makes it more challenging to track rights, risks, and obligations.

Centralizing all contracts within a Contract Lifecycle Management platform (CLM) is one potential solution. These cloud-based digital repositories simplify contract management and refine responsibilities by storing information in one place. They also create a searchable, auditable database of all company contracts.

2. Visibility

Legal, sales, and finance teams must have easy access to contract information. When they don’t, bottlenecks form. They may also make uninformed decisions that can put the company at risk.

A CLM platform can prevent these problems by increasing visibility across teams. Many of them have configurable permissions that only give relevant users access to critical information. Company data stays secure and accessible, enabling smoother collaboration and streamlined contract management.

3. Standardization

Non-standardized contracts expose companies to avoidable threats. For example, outdated language might survive the review process — an error that can put untenable obligations in writing and strain inter-company relations.

Building a library of pre-approved contract templates mitigates these risks. Professionals should tailor contracts to fit all signatories and periodically update the templates to reflect current offerings and limitations. 

This approach ensures new agreements protect the company and dramatically speeds up the drafting process.

4. Automation

The contract lifecycle involves many time-consuming tasks. For example, chasing signatures and sending multiple email reminders slows things down and often results in miscommunications.

Automating these workflows with CLM platform technology eliminates bottlenecks and other obstacles. Automation can route contracts to the relevant parties for review and approval and remind people to complete tasks on time. Legal and operations teams are then free to focus on more pressing matters.

5. Compliance

Compliance is a vital principle of effective contract management. Companies that fail to adhere to regulations place themselves in significant legal and financial danger. These risks increase exponentially if a company only uses physical contract management systems.

Managing contracts with a CLM platform makes compliance much easier. It can automatically track all company commitments, deliverables, and renewal dates. This approach ensures all parties fulfill their obligations and prevents unwanted auto-renewals.

6. Optimization

An optimized contract management strategy can transform static documents into data goldmines. Each stage of the lifecycle becomes searchable and reportable. Companies can then analyze risk exposure across their entire contract portfolio and identify opportunities to improve terms based on performance data.

CLM platforms streamline contract management and organize the lifecycle into distinct phases. They also collect data from each contract in their central data repository.

7. Security

Contracts contain some of the most sensitive company information, so security breaches in this area can be catastrophic.

The best CLM platforms come equipped with enterprise-grade security features to protect company data and ensure it is only accessible to approved stakeholders. They have end-to-end encryption, granular user roles and permissions, and comprehensive audit trails.

3 key contract management practices

The core principles outlined above are only one part of contract management. Daily productivity drives measurable progress. 

Aligning strategy with practice can be challenging. Here are three ways to close the gap.

1. Define roles and responsibilities

Everyone involved in contracts needs to understand their professional obligations. Many companies clarify who does what with a Responsible, Accountable, Consulted, Informed matrix. 

For example, imagine a business is onboarding a new customer. A sales representative is responsible for the initial request, while the legal team is accountable for the review, and the finance department takes a consultative role on payment terms. Everyone in this scenario understands their purpose and function within the lifecycle.

This arrangement reduces confusion, prevents delays, and makes it easier to hold teams accountable.

2. Develop a standardized contract playbook

A standardized contract playbook unites all resources in one place. It should include templates, workflows, clause variations, and negotiation thresholds.

Easy access to these resources empowers teams to handle routine agreements independently and protects the company from overreach. 

3. Integrate contract data across business systems

Companies rely on more tools in their tech stack than just CLM platforms. Many also use enterprise resource planning and customer relationship management systems.

Incompatible systems trap information in data silos, thus slowing core processes and keeping some users in the dark. In the worst case, they may even lead to the approval of outdated contracts.

A bidirectional data flow prevents these issues by enhancing each system’s output and improving company efficiency.

Frequently Asked Questions

Contract management often sparks pertinent questions. Here are three of the most significant to consider.

1. How do I choose a contract management platform?

Many CLM tools offer a suite of valuable features. Ultimately, the deciding factor is whether a given platform can solve your specific business challenges.

Assess your company’s needs before committing to a solution. If your team has never used a CLM platform before, ease of use should take precedent. Prioritize data intelligence if your company needs to extract strategic value from its contracts. 

2. How do I measure contract management performance?

Identify relevant key performance indicators and periodically reevaluate them. For example, you might measure your average time to approval for contracts. If this number decreases after you integrate a new CLM platform, you’ll know your company is getting a return on its investment. It all depends on the KPIs you value most.

3. How much time can a contract management platform save?

The answer depends on how you use it. A well-integrated CLM platform should lead to more efficient contracting across the entire lifecycle. If your company goes through dozens of contracts a year, the platform can save hundreds or even thousands of hours. 

This speed streamlines operations, while allowing your teams to develop and fulfill contracts more quickly.

Hundreds of companies worldwide trust the award-winning Agiloft CLM platform. Book a personalized demo today for a first-hand look at its capabilities!