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What is Contract Management? A Complete Guide for Businesses

Contract management is the process of creating, processing, streamlining, documenting, and managing contracts. As businesses keep growing manual contract management processes start to become archaic, tedious, and more difficult to manage, incurring significant time and opportunity costs, lack of data transparency, and even financial losses.

Here, we will understand a typical contract management process, discover its benefits for each enterprise team, and understand steps to optimize business contract management.

Contract management definition

Contract management is the process of end-to-end contract administration – from understanding negotiable terms and contract details, analyzing contract deliverables, managing bi-partite expectations, drafting and executing contracts, and following through on contractual commitments.

In other words, contract management is the practice of optimizing every step of a contract lifecycle to help the organization derive maximum value from business contracts.

What are the benefits of contract management?

Efficient contract management can help businesses of any size:

  • Accelerate contracting processes
  • Make information discovery democratic
  • Standardize contract processes
  • Analyze, predict, or track risks
  • Gain better visibility into cross-team dependencies and improve coordination
  • Arrest loss of data and information
  • Track contractual obligations and fine-tune delivery

A typical medium-sized organization processes thousands of contracts a quarter, and they are mostly manifested across - folders, cloud drives, hidden in email threads, or spread across a range of business tools used by the different teams within the organization.

Contract management makes uncovering key data points, tracking business exchanges, or leveraging previously executed contracts to negotiate new agreements time and resource-efficient.

It also adds granular control in the negotiation, contracting, and post-contracting processes. This, in turn, helps you align your team (or organization) to your contractual obligations and go from customer satisfaction to customer delight.

9 key stages of contract management

Great contract management involves keeping tabs on all the moving parts in the contract process, which means - contract management starts well before a contract is initiated, and ends well beyond execution.

Here are the key stages of a contract management process -

  1. Contract inquiry stage
  2. Contract templatization stage
  3. Contract creation stage
  4. Contract editing stage
  5. Contract negotiation stage
  6. Contract approval stage
  7. Contract execution stage
  8. Contract storage stage
  9. Contract renewal stage

Contract inquiry stage

This is the stage where a team within or outside your business generates a contract requisition. For example, a customer entering a sales agreement after deciding on purchasing your service/product.

The key action items in this stage are:

  • Build a process where all contract requests, across any team, are stored in a single, safe, and easily accessible location.
  • Ensure all details of the agreements are effectively captured so there are minimal version edits when contract creation starts
  • Integrate contract management with your existing business tools to ensure no data is lost in the process

It is best to use contract management software that integrates seamlessly with your existing SaaS tools and stores all contract requests in a safe cloud storage.

Learn more about all contract management integrations.

Contract templatization stage

In a typical contract lifecycle, the contract templatization stage helps save time and effort by leveraging template agreements to generate fresh contracts faster (albeit with minor iterations). Templates are created by the legal team for standard agreements. For example

On the other hand, unique or complex contracts may require to be created anew and hence will bypass this stage completely.

Contract creation stage

Once the circumstance of a contract (whether it is standard or unique) is identified, the contract starts to be created. Standard contracts, especially for businesses that use contract management software, would not require the support of an in-house counsel or team.

In such cases, contract owners - i.e. the respective business teams will access a template from the repository and fill in the specific details in the boilerplate, making contract creation instantaneous.

For complex contracts, an issue has to be raised with the legal team to create the contract from scratch. They would need detailed insight into the terms of the agreement from the internal stakeholders before following up with the counterparty.

Contract editing stage

All the groundwork from your contract management process is starting to manifest in the contract editing stage. For your standard contracts, edits to the contract will be minimal and less time-consuming.

In most cases, it would involve statutory changes like changing - the governing law provision depending on where and with who the deal is made, or the approving authority based on the deal value.

For complex contracts that require the purview of multiple parties and goes through multiple edit cycles, contract collaboration software helps simplify live edits in bulk, approve or reject changes, or track real-time changes made on the contract. 

Contract negotiation stage

Contract negotiation is the process where two or more parties come to a mutual agreement on the deal details, legally enforceable clauses in a contract, and their participation in a matter or transaction before executing the said contract.

Negotiations are almost inevitable for unique or complex agreements and involve multiple back-and-forths between legal and business representatives of both parties entering the contract. But having fallback positions is a great way to accelerate turnaround times.

It is also a good practice to create standard provisions for template contracts - like sales agreements, NDAs, so you are prepared in advance about what concessions to give and what to refute, in case of sudden conflicts with the counterparty.

Download the NDA Negotiation Playbook for free and take control of your NDA negotiations. Created by the brightest legal minds at SpotDraft, the playbook can also be customized to fit every contract category for convenience.

Contract approval stage

Before a contract is signed and becomes legally binding, it needs to graduate through the approval stage. Approval of a contract can depend on one/more of the following factors:

  • Type of contract
  • Deal value
  • Legislative authority
  • Delivery based obligations
  • Special terms or conditions

Modern contract management software have workflows that automate the hassle of identifying the approving authority, sending them the contract, and waiting for their approval. Instead, they analyze the company’s internal rulebook, identify the authority, and collect their approvals automatically for faster checkout.

Contract execution stage

It is when both parties sign a contract to make it legally binding. From paper-based to eSignatures, contract execution has come a long way with the help of technology.

After many regulatory iterations, eSignatures are now widely used by businesses and are now by far the fastest and most effective way of executing contracts legally.

Read more: The history and growth of eSignatures

Contract storage stage

After a contract is executed, it needs to be nested in an inventory for easy access at a later date. In large organizations, knowledge managers keep track of all executed contracts, nest them in a secure library, and help recover them as and when needed at a later stage.

Over the world, businesses are warming up to the idea of contract inventory management, which is an efficient way to store, organize, and analyze all business contracts. This becomes increasingly crucial as and when a business and its contract volume grow.  

Contract renewal stage

Statutory contracts usually have a binding expiration date, after which the agreements made between participating parties are invalidated. For businesses, this spells direct losses in subscription revenue or customers.

The business is responsible for tracking expiration dates and sending renewal notices well before a contract expires to avoid opportunity costs. Once the counterparty receives their renewal notice, they may initiate or negate contract renewal conversations.

Contract management for businesses

Efficient contract management can help accelerate business cycles, provide individual business teams independence and self-sufficiency, and free up time for your in-house legal team to bypass administrative tasks and provide active business counsel.

Here’s how contract management helps individual teams within your business -

Sales contract management

Sales contract management is the process by which sales teams within businesses can actively generate, monitor, execute, and reference sales agreements without continuous support from the legal team, by leveraging technology, integrating contract management within their sales process and tools, and actively maintaining a repository of shared knowledge. 

Excessive sales dependency on the legal team is process-inefficient for both teams and also leads to long and cumbersome sales cycles. By streamlining your sales contract management process – contract lifecycles can be shortened into minutes, in turn making sales cycles faster and more autonomous, while providing your customers a fast experience right from the start.

Here’s how sales contract management can drive value-

  1. Generate contracts faster with templates
  2. Contract tracking to close recurring customers
  3. Simplify access to information with contract integrations

Generate contracts faster with templates

Offloading the task of creating a contract to your Legal Team can result in longer wait hours, more follow-up sessions, and unnecessarily prolonged sales cycles. Instead, having fill-in-the-blank contract templates can help you onboard customers faster.

💡 Pro-Tip: Work with your legal team to create plug-n-play sales contract templates and use them for every new contract instance. Reduce dependency and increase TAT.

Contract tracking to close recurring customers

Recurring customers are your strongest brand advocators and are more important to your business than any other. But what happens when a recurring customer slips through the cracks because you didn’t notice their contract expired?

Efficient contract tracking can help you stay abreast of key details like deal value, expiry date, and retainer clauses. This helps the sales team provide recurring value on one closed deal.

💡 Pro-Tip: Set up recurring reminders every time you close a sales contract. Or automate insight-hunting and contract reminders with SpotDraft’s intuitive tool. Remember, it is important to not miss any detail.

Simplify access to information with contract integrations

A great deal of business information is nested within contracts. Often they can be the differentiator for a successful sales cycle. Access to contract information becomes difficult if they work in isolation from your sales process.

Digital contract management tools provide the ability to integrate your contract workflows with your CRMs. That means, all your sales and business information is nested in one place for better clarity.

Here’s an example👇

Contract management for HR teams

Culture and people are at the heart of success for companies of every size. And the onus of people management is therefore a critical function bestowed upon the HR team. And because the terms of engagement between employees and the organization and cultural precedents are formalized through contracts, tracking them also becomes a responsibility of the HR professionals.

Here's how contract management can help make the process simpler-

Easier performance auditing

Details on an employee's roles and responsibilities, primary KRAs, and focus points are nested within most employment agreements. During the quarterly or annual performance reviews, insights about an employee's responsibilities and terms of engagement will help the HR team generate better correlations between their performance and goals.

Building a formidable contract management process can help the HR team provide objective analysis, reduce guesstimation, and shorten the time required for due diligence.

Smoother transitions during realignment

Changing terms of onboarding or employment are inevitable when an organization grows both in size and demography. Contract management can help the HR team prepare for impending upgrades or alterations.

A smart contract repository can only unify all legacy contracts in one place, or actively tag them based on preconditions. This makes tracking executed agreements and pre-empting changes to future contracts easier. Especially in the case of realignments, insights about employee responsibilities can help set the path for alteration processes or contribute to better hiring decisions.

Contract Management for Finance Teams

Finance is a data-intensive operation. At the same time every purchase, employment, or sales agreement contains data on monetary exchanges and the contextual breakdown of every incoming or outgoing dollar data for businesses. Contract management can help the finance team become more granular in their approach and reduce dozens of hours in knowledge management or looking for the right information.

The multiple benefits of contract management for finance teams are -

Identify lost revenue or saving opportunities

Unpaid revenues bleed business bottom-lines like none other. This is why setting up automatic payment reminders on contracts, can go miles into procuring value.

On the other hand, maintaining an active database on due dates can help finance teams plan for expenses better while avoiding penalties or unwanted automatic deductions in case of unrestricted rollovers.

Ensure compliance across financial audits

Auditing your legacy contracts can go a long way in planning for Q1 based on previous trend lines. But spending time manually reviewing them, or waiting for your legal team to send updates can come at a huge time and opportunity cost.

Modern cloud contract management systems can access and present the key details on every contract in an instant. This reduces dependency, helps identify compliance issues, and potentially saves a lot of money and time.

For example, here is how SpotDraft’s contract management platform analyzes data within the contracts and presents a summary of the most important details in an intuitive dashboard view.

Learn more: Impact of contract management on your business

Contract management software and its impact on businesses

A contract management software is an integrated system that helps create, edit, negotiate, execute, and manage contracts. It also helps businesses apply data-led approaches to optimize their contract lifecycles and generate better user and customer experiences.

For a detailed understanding, check out contract management software basics.

While small businesses with low contract volumes typically use a mix of free or readily available tools to create a contract management process, this manual method comes with its risks

  • Manual processes are prone to errors
  • A small break in the system can lead to a domino effect on the contract lifecycle
  • Is not a scalable solution for contracts when a business grows
  • Requires a lot of manual intervention and consumes time
  • Can lead to compliance issues

But if you do not have the budget to invest in a contract management software just yet, check out our free tips to manage your contracts organically

For businesses - whether they are SMEs, enterprises, or scaleups, investing in the right contract management software at an early stage can sometimes be crucial because of the following reasons:

Automated contract management

A contract management software provides integrations with existing business tools so the usual processes around data entry, generating contract requests, even accessing templates, creating contracts, and managing them are automated. This also reduces the scope for manual errors and makes for an error-free contracting experience.

Increases legacy contract and knowledge accessibility

A contract management tool provides organizations with complete visibility over their contracts by digitizing and centralizing them. In turn, it is easier to evaluate them by specific deliverables and milestones. It helps businesses renegotiate legacy contracts, consolidate the number of vendors, or identify opportunities for cost savings.

Unifies contract communications and improves data discoverability

Instead of having business-critical information spread in an unstructured manner across all your conversation channels, a digital contract management system helps businesses track conversations better.

This ensures that data and contract clauses are available precisely the moment they are needed, thus, making it easier to find delayed deliveries and late payments that can incur financial penalties.

Learn more: Benefits of contract management software to your business