What Is Contract Management? Everything You Need to Know

what is contract management

Did you know that inefficient contracting can cause firms to lose up to 40% of the value on a deal? 

Contracts are central to large and medium-sized companies. Businesses require contractual agreements with customers, suppliers, vendors, employees, and consultants. 

Companies often have thousands of contracts within a specific period. With a high volume of contracts, it wouldn’t be surprising to make costly errors. There is a need for contract management to streamline the contract processes. 

Are you familiar with contract management? Keep reading to know everything about contract management and why your company needs it. 

What Is Contract Management? 

Contract management refers to managing agreements, from the point they are created to execution and termination. Typically, companies stuff executed contracts in the filing cabinet. With contract management, you’ll have; 

• Self-service portals 
• Electronic signatures 
• Pre-approved templates 
• Legal playbooks 

The key activities in contract management include performing analysis against the contract terms to maximize financial and operational performance. It also involves identifying reputational and financial risks that a company faces if they don't comply with the contract terms. 

Phases of Contract Management 

Contract management is the best way to ensure that contracts are saving time. If you're not sure of the contract management process, you'll miss out on its opportunities. Here are the contract management stages that you need to know; 

Contract Preparation 

The contract preparation stage involves a need identification, setting expectations, establishing goals, and defining risk. Once you identify the contract's needs and goals, the decisions you'll make after that will be easier. The contracts ought to mitigate any risk that's likely to arise throughout the period. 

In the first stage, you have to exhaust all the reasons for creating the contract. From there, you can move to the next step, where you draft the contract. 

Authoring the Contract 

You might want to consult with your attorney, especially if there are any rocky areas you need to highlight. It would also be great to have up-to-date information, which should be preferably drafted by a legal team. 

The authoring stage will require you to be specific in your wording. Contracts don’t need any ambiguity that might cause misinterpretation. While at it, ensure that you consider the country or state laws of the parties involved. 

Negotiation Stage 

Negotiating with the other party should start with trust and transparency. You might want to research the needs of the other party to make the process simple. A strong rapport will ensure that the negotiation is smooth enough. 

You can use the contract management platform for the parties involved to collaborate and make changes in real-time. The ApproveMe’s contract template center is one of the contract management tools you can use to have every party on board. The negotiation stage might be slow with offline documents, as everyone has to receive the details via their email. 

Get Approval 

Approval is the next stage after a successful negotiation. In some companies, there's a need for the completion of audit procedures and manager approval before you can finalize the contract. 

Advanced contract management solutions allow relevant parties to receive notifications. They can then view, comment, or edit the contract in real-time. Once everyone has approved the contract, you can finalize it. 

Execute Your Contract and Keep Amending as Necessary 

By the time the parties get to the signing stage, it is clear that the wording is right, and everyone is in agreement. If you are in different time zones, getting signatures within the set deadline can be challenging. Fortunately, the parties involved can make good use of e-signature to solve these issues. 

As part of the contract’s life cycle, you’ll make several amendments and revisions. You’ll have to track changes and record edits. The right contract management system will make it possible for everyone to know the changes made on a contract. 

Benefits of Contract Management for Your Company 

A recent survey shows that 81% of manufacturers embrace contract management software as part of the digital technologies to boost productivity. If you've not yet adopted contract management solutions, you're missing out on a host of benefits. Here are some of the expected benefits of contract management that you need to know; 

Financial Optimization 

A contract management system is one of the best ways to address charges related to the renewal of unnecessary services and legal fees. You'll also be able to analyze spend visibility can help with your financial plan. 

Companies that have a transparent contract management process have a high annual saving rate. The contract ensures that you'll be getting your items from approved suppliers, which reduces off-contract spending. This move allows business owners to have a precise financial optimization. 

Operational Efficiency 

A business that works with a contract management system has improved forecasting due to better analytics and data. This system can track all the crucial milestones. It then provides tools and automated alerts for users to schedule their activities as necessary. 

Elimination of the manual processes allows business owners to control the processes better. Consequently, the workflow becomes more efficient, leading to better productivity. 

Risk Reduction 

The contract management system enforces controls, policies, and conditions that improve contract compliance. Suppliers coming on board need the right certification and validation to be part of the team. The system further makes it easier to identify suppliers, even those in high-risk zones, crucial in your firm's risk management. 

With contract management, it is easier to note any regulation or policy violation before they escalate. These tools will make it easier to mitigate risks as they manifest. 

A Contract Management System Is Ideal for Any Business 

Contracts are an indispensable part of doing business. As your business grows, your contract documents might become too bulky to fit in your filing cabinets. You might need to think about contract management solutions to deal with the issue. 

The right contract management software has a host of benefits for users. Contract managing increases productivity and saves money. You can’t afford to ignore this contracts system! 

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