10 Contract Management Best Practices

Contract management is more than drafting a satisfactory agreement and remembering what the parties included within that agreement. Contract management is a rigorous and time-consuming process of drafting, measuring, managing, and automating contract development and execution. Contract management software helps create a repeatable process that uses artificial intelligence to import and evaluate risk in contracts as well as ensure legally agreed-upon contractual obligations are met and business opportunities are not missed.

Contract management software is one of the most vital tools to help maximize revenue while minimizing possible liability. Below are the ten best practices you can use to enhance your contract management process.

What is contract management?

Contract management is the business process that helps manage the creation, review, execution, monitoring, evaluation, and renewal of contracts to maximize business performance while minimizing risk.

Contract lifecycle management is key to the success of your business. Legally binding contracts determine a business’s stakeholder relationships, pricing structures, work scope, rights and obligations, timelines for projects, warranty provisions, and more. Knowing how critical contracts can be, effective contract management can drastically improve your organization’s performance. If your contract management is weak, it can lead your business towards various operational and financial risks.

The role of contract management is ever-changing. Contract management involves understanding every aspect of a contract’s lifecycle to extract meaningful data and information insights. Businesses that engage in successful contract lifecycle management drive their contract performance and achieve their objectives through efficient contracting and faster cycle times. Contract Lifecycle Management (CLM) has evolved from an operational record-keeping system to an enterprise-level core system that addresses business risk, costs, and the maximization of revenue and profits.

10 Contract Management Best Practices

Below are ten examples of contract management best practices that you and your team members can use in your organization.

1. Standardized contract creation

Effective contract management can result in more efficient work processes. Your legal department can achieve significant time savings through the standardization and pre-approval of contract language and terms. For virtually any legal department, a standard set of templates that includes similar clause language, vocabulary, conditions, and legal terminology can be applied to a large number of contracts. Using identical, pre-approved wording can enable the general counsel to reduce review time. Common language allows the council to concentrate on specific sections unique to the contract under review.

2. Vendor/supplier performance management KPIs

Being able to articulate contract management KPIs offers a transparent set of your fundamental business goals. It is much easier for leaders in a department to develop best practices that generate results if they know exactly what their business goals are. Unmet KPIs may reveal possible leaking costs or productivity issues that are harder to spot without a clear understanding of the standards or expectations.

3. Balance storage security and visibility requirements

Some of the best contract management solutions meet two objectives that are usually at odds– the security and visibility of sensitive contract information and quick, easy contract access.

The solution to managing contracts safely is to have a secure system that utilizes robust verification of authorized personnel to ensure the identification of employees or partners. Confidential documents are kept protected with a security process that prevents unauthorized user access. Having a central system simplifies contract access across the organization. System administrators can grant various access levels, so users only see files they have the authority to view.

4. Streamline approvals to slash turnaround times to save money

A streamlined contract management approval process benefits your organization in many ways. First, your business holds the advantage of receiving contracted goods and services quicker, saving money and hassle.

Positive relationships are a result of a shorter cycle from the initial conversation to finalized approval agreements. This is done by adding convenience on both sides. Businesses that are quicker and more responsive may have a much easier time seizing opportunities with relatively tight turnaround times.

5.  Automate manual contract communications

If you email or ship contracts back and forth through posts with partners, you’re following an outdated practice and taking on too much risk. Sending through email and post can cost you time and money.

A cloud-based, central repository system provides multiple points of contact and access to contracts simultaneously. A cloud-based repository system and its tools can also offer team collaboration and easy discussion since all parties or groups can have access to the same contract version immediately. Additionally, setting an automated reminder to essential parties eliminates the risk of forgetting one group’s address on a group email reminder.

6. Keep a close watch on finances and metrics

Saving costs is a top goal for companies with a contract management system. Cost savings can come from anything, including more informed negotiations, better supervision of contract performance, and lower incidence of auto-renewals.

Leading contract managers create financial metrics as a dedicated routine in contract management reviews. Make sure you include financial executives on a regular update schedule that can suit your company’s needs as a way to compare contract performance to your organization’s budget expectations.

7. Conduct regular compliance reviews

Compliance is a critical area to routinely check on in your contract review and management process. Plan to review two significant contract compliance categories–federal, state and local regulations; and compliance within the contract.

Many organizations adhere to federal, industry, and other external regulations. Failing to do so may result in fines and penalties. For many, a business license may be at stake if there’s a severe breach of compliance. Protect the company against risk by using automated contract management that includes a full audit trail to ensure you can track everything happening in your system.

It is also essential to track and manage compliance to the contract terms to ensure you are getting the goods and services you have paid for during the life of the contract.

8. Resolve disputes promptly

Thorough reviews are only as good as your organization’s action to resolve any problems the contract managers find. Preparing a formal dispute process and having a more proactive response to contract disputes can lead to cost savings and performance improvements.

9. Anticipate evolving business needs

Each contract need does not necessarily remain the same five or ten or even two years down the road. Successful contract management requires you to take a long-term view of an organization’s demands and capacities. Make sure you plan to address fluctuations in demand and any upcoming changes to ensure the business’s current relationships will not be affected.

Providers may reach a point where they find it difficult to scale new requirements. The financial office within your organization may not understand which costs to factor into the operating budget without a clear reassessment.

To get ahead of this challenge, it is imperative to use a flexible contract management platform that can quickly respond to changing business needs, supply chain issues, rising demand, and more. This is where no-code contract lifecycle management shines, since it allows business users the ability to configure the software as business needs change instead of spending lots of time and IT resources to develop new templates or workflows, which may take months or even years with traditional, code-heavy software.

10. Compare contract trends against market insights

Another benefit of consistent contract management is that your company will be better positioned for negotiations to go in your favor. With modern contract management, you can use the best practice of market intelligence tracking on vendor pricing, technological developments, and other standards that apply to vendor and client relationships. During the negotiation window, before renewing a contract, review the contract to determine if terms are still a competitive advantage over your current market.

Contract management with Agiloft

Apply contract management best practices by integrating contractual data and information into your key processes, which can greatly improve your revenue and portfolio landscape. By using these best practices with a streamlined contract management system, you can create significant business savings across the organization. Poor contract management can cost a company a great deal in its annual revenues, create unnecessary risk, and reduce morale in procurement teams or legal departments. For example, once a contract is signed, there is often a laid-back tendency to react to issues late rather than proactively address them, and that can result in revenue impacts and sometimes jobs are lost in the process.

Having good contract management practices results in cost savings, long-term relationships with contractors, and ideal project execution.

Agiloft offers a contract lifecycle management software that automates the manual workflows associated with initiating, executing, and monitoring contractual agreements. Implementing a contract management and monitoring system provides you with significant business savings in purchasing, enabling more efficiency in sales cycles and drastically lowering compliance risk. Agiloft was recently named a top-rated provider for every contract use case, including Procurement, Sales, Legal, and Enterprise, for Contract Life Cycle Management in the 2021 Gartner Critical Capabilities report. Read the report here.