Contracts finalize all business agreements. To mitigate risk in contract management and create strategic relationships, contracts go through 7 stages of the contract lifecycle.
Contract management has taken on a bigger role in day-to-day tasks. Obviously, this occurs as businesses work toward increasing productivity without increasing their employee numbers. As the number of contracts in business transactions grow, it’s imperative that contracts save time, not consume more of it.
Having a comprehensive understanding of the contract management process minimizes time spent working on administrative tasks. Furthermore, it allows maximizing strategy to accelerate and automate deals.
In-Depth Articles on the Contract Lifecycle:
- Drafting a Contract
- Internal Approval of the Agreement
- Contract Negotiation
- Signing the Contract
- Securely Storing the Agreement
- Tracking Contracts and Documents
Stage 1: Contract Management Preparation—Identify Your Needs, Establish Goals, Set Expectations, and Define Risk
Contracts are legally binding documents that should not be approached lightly. Therefore, it’s important to be organized and prepared with the right resources.
Properly identifying the needs, reasons, and ultimate goals that require a contract makes any decisions down the line much easier.
Contract management should:
- Seek to define and mitigate risk in a relationship
- Look ahead to scenarios that could occur over the lifetime of the document
- Account for these various outcomes in the contract
For example, the terms of agreement within a contract should address what happens if the client files for bankruptcy, goes out of business, or sells the company, along with any other contingencies that may arise.
Another example is a contract of pricing terms for customers. One goal of this document is to financially protect the business in any scenario, and ensure payment once the tasks outlined in an agreement are complete.
Good contract management ensures that even if a business relationship is strong, each side obtains exactly what is in the contract.
Once we establish the reasons for creating a contract, it’s time to begin drafting the contract.
Stage 2: Draft the Contract
Consulting with in-house counsel or an attorney is wise, especially if there are any uncertainties. Better yet, use a pre-set template drafted by your legal team to ensure all the information is up-to-date and all required clauses and terms are automatically included.
When drafting or authoring the terms of the contract, it’s important to pay attention to specific wording. Any ambiguity leaves contracts up for interpretation, even down to a comma. State and country laws also need to be taken into consideration. This is especially true if the two parties are in different locations.
Stage 3: Get Approval Before Finalizing the Contract
In companies that need manager approval or have audit procedures, all requirements for approval need to be met before finalizing the deal.
For example, a company needs to meet procurement policies prior to contract approval. In contract management software, this is as simple as setting up an approval workflow. Simply put, whoever needs to approve the contract receives a notification and can view, edit, and comment on the contract in real-time.
Stage 4: Contract Negotiation
No matter how much research, planning, and preparation goes into the first draft of a contract, negotiation almost always follows. Contract negotiation should begin with transparency and trust. Anticipating and researching the other party’s needs before the conversation simplifies the process. Furthermore, it creates a strong foundation for a lasting relationship.
As redlining begins, it’s easiest to use contract management software so both parties can view the working document to make changes and collaborate in real time.
Email and offline documents can be confusing and cause costly mistakes. A single source of truth for conversations and contracts will result in quicker negotiations and a contract that provides visibility for both sides.
Stage 5: Sign the Contract
The signing should be the simplest part of a contract. Both parties agree the wording is exact, and the next step is simply making it official.
However, many businesses make agreements across the country or even the globe, and getting signatures isn’t as straightforward as meeting in person. Especially if deadlines are tight or time zones are incompatible, overnight mail or even email may not be the best way to get signatures faster.
A legally binding online signature (e-signature) can solve all these problems, allowing you to move faster. More importantly, it accelerates signatures and revenue.
Stage 6: Keep Up With Amendments and Revisions
Contracts are rarely stagnant. Revisions and amendments are a common part of the contract lifecycle. Tracking changes and the effects for each party can be confusing, unfortunately.
Moreover, this is another reason to implement a reliable process, such as contract management software, to easily record edits and add amendments. It’s important to stay ahead of the changes. Additionally, make sure both parties are fully aware and in agreement on any revisions.
Stage 7: Manage After the Signature—Audits, Renewals, and Obligations
Finally, contract management doesn’t stop once there is a signed contract. In particular, performing regular audits ensures all parties meet obligations and realize value.
Alerts should be set for contract deadlines and renewals. Missed renewals mean lost opportunities to continue a relationship, and most importantly for a company, lost revenue. Being aware and making contact well before the renewal time shows reliability and care for the relationship. Additionally, this effort will continue to build trust and loyalty.
Moving Forward in Contract Management
Contract management is often thought of as a time-consuming task, however, with contract management software it can be automized to increase efficiency and ease. This way, it has the potential to be one of the most lucrative areas for building business relationships and generating revenue.
A contract management platform simplifies contract management processes by:
- Managing and avoiding risk and compliance issues through contract templates and approval workflows
- Streamlining contract negotiations with online redlining
- Delivering more revenue (and faster) with online eSignatures, and
- Tracking signed documents, helping organizations grab otherwise missed opportunities
Forward-thinking companies are turning to contract management platforms to reduce costs, mitigate risks, and increase profitability.