Frequently asked questions about contract management

When you hear “contract management,” it might sound like just another technical term that only legal teams deal with. But the truth is, contract management is a vital part of running any successful organization, no matter its size. Whether you’re launching a startup or managing a global enterprise, having a strong approach to handling contracts can save you from expensive mistakes, make your operations more efficient, and keep you compliant with changing regulations.  

In this FAQ guide, we’ll break down everything you need to know about contract management and why it’s important for your business. 

1. What is contract management?

Contract management is all about the journey of a contract from start to finish. It includes everything you need to do, starting with drafting the initial agreement, making sure all parties stick to their commitments, and keeping an eye on important dates like renewals and deadlines. The main goal is to ensure that contracts are being executed, everyone is following the rules, and any potential risks are kept to a minimum. 

2. Why is contract management important?

Managing contracts is important for several reasons: 

• Operational efficiency: Having your contracts organized and easily accessible means your teams spend less time searching for documents and chasing down details (or people). This frees up valuable time for them to focus on other important tasks. 

• Compliance: Many industries (and countries) have strict regulations, and failing to comply can result in hefty fines or reputational damage. Having a good contract management system can help to ensure all your contracts meet the necessary laws and regulations. 

• Risk mitigation: When contracts aren’t managed well, it can lead to misunderstandings, financial penalties, and legal disputes. A solid contract management process helps you to spot and tackle potential risks before they turn into real problems. 

• Cost savings: With effective contracting, you can keep track of key contract milestones, such as renewal dates and payment terms, while avoiding unnecessary costs and staying on top of opportunities to renegotiate better terms. 

3. Who are the key players in contract management?

Contract management is a critical function utilized by various stakeholders across different sectors and industries. Here are the primary teams that touch contract management in some shape or form: 

• Legal teams: Legal professionals are integral to the contract management process, responsible for drafting, reviewing, and negotiating contracts to ensure compliance with laws and regulations. They analyze the benefits and risks associated with contract language and oversee the execution of binding agreements to protect the organization from potential liabilities. 

• Procurement teams: Procurement departments play an important role in managing contracts related to purchasing goods and services for an organization. They work on negotiating terms to secure favorable deals for the organization and ensure that contracts are aligned with operational needs and budget constraints. On top of all this, corporate social responsibility is taking over as a leading priority among procurement teams. According to PwC, “a significant shift is taking place, with Corporate Social Responsibility (CSR) issues making their first steps on the podium in 3rd place ex-aequo” among purchasing and procurement teams.  

• Finance: The finance department is responsible for managing the financial aspects of contracts, including budgeting, invoicing, and tracking payments. They evaluate contract performance from a financial perspective, ensuring that terms are met and identifying any financial risks. 

• Compliance teams: These teams ensure that all contracts adhere to regulations and internal policies. They play a proactive role in mitigating risks associated with non-compliance and help maintain organizational integrity. With technology like Artificial Intelligence (AI) on the rise, you may be surprised how many new and upcoming regulations there are related to businesses using AI, especially those in the European Union.  

These are just a few of the teams that touch the contract management process, but contract management is far more than just a legal or administrative function – it’s a critical business process that touches nearly every aspect of an organization.  

4. What are the benefits of contract management?

Contracts can be a headache, but when managed right, they become powerful tools for operational success. Key benefits include: 

• Supercharged efficiency: Say goodbye to email inbox rabbit holes and lost documents. By automating routine tasks, you can save time and reduce administrative overhead by finding exactly what you need at your fingertips. 

• Cost savings: A robust contract management system can lead to significant savings by helping you negotiate better terms and avoid legal disputes. With organized details at your fingertips, you can easily track, sort, and manage your contracts in one place. 

• Risk management: With a contract management system, you get clearer contracts and more rigorous tracking, so risks related to missed deadlines, non-compliance, and financial penalties are minimized. 

• Data-driven decisions: Effective contract management provides valuable insights that guide your business decisions, from spending patterns to supplier performance. Leveraging contract data has many benefits including cost savings, streamlined operations, and accelerated sales.  

• Stronger relationships: Effective contract management leads to better communication with teams, which leads to trust between clients, customers, and suppliers. When contracts are handled effectively and professionally, partnerships are strengthened for future collaborations. 

5. What are some best practices for managing contracts?

Best practices for contract management encompasses a range of strategies, from standardizing contract templates to leveraging technology for automation. They not only help in maintaining clarity and consistency but also foster collaboration among stakeholders. In addition, adopting best practices can empower legal and contracting teams to navigate the complexities of contracts with confidence and agility. For a more in-depth look at best practices for contract management, read our blog on 10 contract management best practices. 

6. What role does digital transformation play in modernizing contract management?

Digital transformation is completely changing the way legal teams handle contracts. By adopting tools like contract management platforms, legal departments can speed up tasks that used to take hours, reducing errors, staying compliant, and improving cross-collaboration among teams. In fact, a KPMG survey showed that the “top priorities for legal professionals in the coming years are information extraction from documents (55%), document automation (54%) and data analytics (45%).” Investing in a contract management platform can transform these challenges into opportunities. By leveraging a data-first Contract Lifecycle Management (CLM) system, organizations can automatically extract critical insights, reduce manual review time, and unlock strategic value from their contract data.

7. How do I get started with contract management?

First things first – review your current strategy for how you’re handling contracts. We’ve seen it all and we won’t judge if it’s kind of a mess. Next, ask yourself some key questions such as:  

• “Are your contracts scattered across random inboxes and shared drives?”  

• “Do people know where to find the latest version of a contract?”  

• “Is your contract process more of a ‘wing it’ than ‘win it’?”

Here is the good news: getting organized isn’t rocket science, and Agiloft has a straightforward roadmap to help kick it off. Our latest resource, “Enter a New Era of Contract Management,” uncovers everything you need to know about CLM software. Learn why leading businesses are leveraging CLM platforms and how they can help organizations improve compliance, enhance contract visibility and control, and boost time and cost savings.  

Conclusion

Contract management goes beyond legal requirements; it’s an essential strategy that can fortify your business, mitigate risks, and enhance operational efficiency. By familiarizing yourself with contract management and investing in effective tools, you can be equipped to manage contracts efficiently and ensure that your business is set up for success. 

Just like mastering the perfect swing, effective contract management is the key to success. Discover how Agiloft helped renowned manufacturer TaylorMade Golf Company implement a sophisticated CLM system in just six weeks.