Contract management is the process of digitizing agreements with your stakeholders to power your CLM while optimizing for transparent contract reporting.
Contracts that pose risk versus contracts that act as a business tool – there’s a thin line – it’s how you deal with contracts. World Commerce and Contracting research shows that poor contract management costs companies 9% of their bottom line.
Effective contract lifecycle management requires:
- Building silo-free systems to ensure a smooth flow of business operations;
- Constant monitoring for better visibility and control over compliance requirements;
- Mastering contract obligations; and
- Facilitating collaboration to drive alignment across teams.
Smart legal teams prioritize effective contract handling by using contract management best practices. That’s why 92% of organizations plan to transform the way they handle contract management processes. And that’s where best practices can come in handy.
5 Contract Management Best Practices
1. Set Responsible Key Performance Indicators (KPIs)
The right KPIs will produce accurate results for your organization. To achieve your organization's goal, you must plan ahead of time for risks using strategy. To ensure that you track and measure what matters, base your KPIs on your goals.
Setting KPIs involves asking the right questions based on what you want to improve. Your goal could be to improve contract compliance. This can then be broken down into specific KPIs, such as well-defined processes, developing the right metrics to track compliance, and identifying what causes non-compliance.
A case study in a Cullen Group report described a federal government department that discovered a multi-year contract provider was only 40% compliant. Missed work cost the company $200,000 per year. It was determined that the root cause was the government department's failure to follow up with the provider or take steps to competently manage the contract.
Contract cycle time, contract risk, deviations, and dispute reduction are some other metrics to consider. According to IndustryWeek, organizations with a well-defined contract compliance process save up to 80% more than other organizations. Without the right KPIs in place, you will be distracted from your goal and not understand why - because there is nothing to measure against. You will not be able to spot leakage points unless clear performance standards are established.
Setting KPIs provides organizations with leverage, such as the ability to compare contract data across relationships over time. This can be used prior to negotiations to determine a company's competitive advantage. Benchmarking against historical data and industry averages can help you spot patterns, gain contract direction, and compare with others in the industry.
Integrating data not only from contracts but also from across an organizational project will help you align contractual processes with overall project processes.
Click here to explore this helpful guide on how to set, manage, and track KPIs for in-house legal teams the right way.
2. Put Communications on Autopilot
Integrating all contract stakeholders can be difficult because it relies on individuals to build and nurture relationships in an undefined manner. Poor communication can lead to missed opportunities, decreased accuracy, and harmed relationship capabilities.
Modern businesses are adopting the "one-stop shop" approach to collaborate and get a bird's eye view of all contract timelines. Smooth communication requires the development of a policy dictating the frequency, channels, and roles of various stakeholders in the communication process. To facilitate centralization and transparency, contract managers must integrate these policies into contract lifecycle management systems. Communications will then run on autopilot, ensuring that no stakeholder is left behind at any stage of the contract.
The constant following up and keeping in the loop is out of the way so you can stay on top of all your tasks.
3. Make Contract Creation and Access Easy
Which operations team doesn't want their workflows to be uninterrupted? Not any that come to our mind.
When teams have access to tech stacks that can make their contract handling processes simpler, they are ready to make a responsible investment. At the outset, standardizing contact creation, review, and access will help you save costs, time, and a headache. However, that is not the only thing a legal department is looking for. You want to track progress against your KPIs, identify gaps, take action, and ultimately meet your goals.
If one of your KPIs is to digitize historical contracts, you're not looking for time savings, but accuracy and reducing silos. Contract repositories can help by locating the right contract at the right time, eliminating contract cycle disruptions and risks.
When it comes to standardization, it’s critical to eliminate friction points because they pose the most risk. To do so, organizations must create risk parameters that are aligned with their implementation efforts.
4. Build Tight Security and Gain Control
Every organization prioritizes tightly knit security. Before contracts can be digitized, they must be protected by a strong security infrastructure. While digitizing historical contracts, what if there were no security compliances or policy enforcements to mitigate data breach risks? Companies would never go that way.
Contract security must be tightened because they contain the most valuable data for your organization – data that drives your business. It is critical to have robust security controls in place to protect confidential documents. A solid system must be accompanied by ongoing monitoring and checks to identify access permissions and flag security issues.
5. Foster and Adapt to an “Evolving Business” Mindset
Contracts are rapidly changing because the market conditions in which they operate change on a regular basis. The economy, industry, and legal ecosystem all have an impact on how businesses manage contracts with one another and their stakeholders.
With constant changes, it becomes critical to move business relationships forward. Contract management software must be adaptable in order for businesses to respond to changes in time. For example, if a shareholding criteria changes due to a new law, existing contracts must be updated, and metadata within the CLM must be adjusted.
Also read: 8 Top Contract Management Software Platforms
Building an effective contract handling system becomes easy when you adhere to contract management best practices. Using best industry practices to power your contracts is a no-brainer. Businesses are going beyond simply adhering to best practices in order to stand out from the noise.
The bottom line is to test and implement practices that are appropriate for your company's priorities. Set the right KPIs for your company so that you only measure what matters. SpotDraft contract lifecycle management (CLM) is a best-practice compliant solution for legal teams, allowing you to overcome effort-intensive manual processes with world-class automation technology.
We’re down for an in-depth chat on how you can implement contract management best practices with SpotDraft.