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Contract management has been a bit of a buzzword in legal circles for a while.
But what does it actually mean, and how important is it?
Can’t you just send out contracts via email, have them signed digitally, and then throw them in a Google Drive folder?
Does managing contracts really need to be more complicated than that?
The short answer is yes. Contract management is critical to get right, and is much more than just storing documents in a shared folder.
In this guide, we’ll answer four crucial questions about the importance of contract management:
Contract management is a legal process that includes managing, monitoring, and optimizing the full contract lifecycle.
That means it covers everything from the first draft of an agreement to the post-award activities that take place once a contract has expired.
The primary objective of managing contracts is to ensure that the rights and contractual obligations listed in an agreement are carried out. This means that each party complies with the terms and conditions set out in the agreement.
However, good contract management also seeks ways to minimize risk and maximize operational and financial performance.
Also read: Contract Lifecycle Management Process: All You Need to Know
Contract management is best considered with respect to the different stages and activities it includes:
Clearly, then, there’s a lot to be covered in an effective contract lifecycle management process. So, what benefits does such an initiative bring?
Best-in-class organizations thrive in the face of increasingly changing market dynamics thanks to robust systems and strategies established for business-enabling processes like contract lifecycle management.
Efficient contract management offers numerous benefits, contributing to diverse areas of business performance. From risk mitigation and cost control to improved compliance and enhanced relationships, effective contract management is a cornerstone of successful organizations.
Great contract management helps companies ensure that the obligations of an agreement are met, reaping better value in turn. This is made possible by minimizing contract compliance issues, keeping invoices and accounts payable on track, and identifying contract renewal opportunities and getting in front of them.
Healthy protocols ensure that contracts currently in play are compliant with local and federal regulations.
Also read: What is Contract Compliance? The Ultimate Guide
This is achieved through a variety of mechanisms:
“Owing to our operations in multiple geographies, a lot of work our team gets is on the lines of contracting and compliance. We are also required to be extremely familiar with licensing requirements of the countries within which we plan to expand. Understanding licensing and applying for the same considering all compliance requirements is a major part of what we do.”
~ Juliette Thirsk, Head of Legal, Peach Payments
Streamlining Legal at a FinTech Startup
For many organizations, a large chunk of contracts are those held with third-party vendors.
Part of good contract management practices involves procurement managing vendor expectations and obligations. By holding regular performance reviews and realignment conversations, contract managers can maintain healthy supplier relationships.
Such business relationships are crucial to the ongoing profitability and competitive advantage of a company. In other words, they’re worth putting energy into.
Strong contract management procedures can reduce the overall cost of maintaining agreements by introducing a few new habits:
Good contract management practices set up the basis for great reporting and insights into contracting behavior.
In many circumstances, this data can be used to great effect to power negotiation conversations.
For instance, your CLM system might tell you that, come time for renewal, you can push pricing up as much as 6% without impacting your win rate.
Also read: Mastering the Art of Contract Negotiation: Strategies for Success
Good contract management is important as it provides a number of important business benefits.
It helps you accomplish the following:
Great contract management helps companies ensure that the obligations of an agreement are met, reaping better value in turn. This is made possible by minimizing contract compliance issues, keeping invoices and accounts payable on track, and identifying contract renewal opportunities and getting in front of them.
Healthy contract management protocols ensure that contracts currently in play are compliant with local and federal regulations.
Also read: What is Contract Compliance? The Ultimate Guide
This is achieved through a variety of mechanisms:
“Owing to our operations in multiple geographies, a lot of work our team gets is on the lines of contracting and compliance. We are also required to be extremely familiar with licensing requirements of the countries within which we plan to expand. Understanding licensing and applying for the same considering all compliance requirements is a major part of what we do.”
~ Juliette Thirsk, Head of Legal, Peach Payments
Streamlining Legal at a FinTech Startup
For many organizations, a large chunk of contracts are those held with third-party vendors.
Part of good contract management practices involves procurement managing vendor expectations and obligations. By holding regular performance reviews and realignment conversations, contract managers can maintain healthy supplier relationships.
Such business relationships are crucial to the ongoing profitability and competitive advantage of a company. In other words, they’re worth putting energy into.
Strong contract management procedures can reduce the overall cost of maintaining agreements by introducing a few new habits:
Good contract management practices set up the basis for great reporting and insights into contracting behavior.
In many circumstances, this data can be used to great effect to power negotiation conversations.
For instance, your CLM platform might tell you that, come time for renewal, you can push pricing up as much as 6% without impacting your win rate.
Also read: Mastering the Art of Contract Negotiation: Strategies for Success
Effective contract management requires a systematic approach comprising various elements that collectively streamline all stages of the contract's lifecycle. Some of these elements include:
Your entire contract portfolio must be housed in a secure, unified location. This ensures optimal accessibility, better version control, and reduced risks of data loss.
Routine administrative tasks like contract reviews, standard approvals, renewal date management, and reporting must be automated using an effective contract management system. This reduces manual labor and allows contract managers to focus on more strategic tasks.
Key stakeholders from various departments must collaborate sufficiently across various touchpoints. This includes sales teams, legal counsel, procurement units, and HR.
Adequate cross-functional collaboration ensures contracts are executed in shorter times with minimal business risks.
Risk assessment and regulatory compliance monitoring are essential components of a proactive contract management process. This involves regularly evaluating contracts (to identify potential risks for issues like contract disputes), developing mitigation strategies, tracking contract performance and compliance with regulations, and staying up-to-date with the compliance landscape.
Once you understand the business value, the next step is building a contract management strategy.
The benefits of contract management done well are undeniable: cost savings, reductions in risk, and more efficient processes.
When the entire contract lifecycle—from new contract creation through to execution and renewal—is handled in a central platform, these benefits multiply.
SpotDraft's contract management platform allows teams to easily collaborate on contracts at every stage of their lifecycle so your team of professionals can improve deal flows and increase administrative effectiveness.
