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What is Contract Management?

  • Hrithik Saini
  • Jun 09, 2022
What is Contract Management? title banner

Contract management is a component of management that is often disregarded. Managers deal with staff members, and some of those conversations and circumstances inevitably revolve around remuneration. Contract management will be discussed in some of these discussions. 

 

Firms must also handle contract arrangements with other businesses at times. Contract management is an essential business subject that is rarely discussed. It's critical to learn the fundamentals of contract management if you're unfamiliar with the procedure.

 

 

What is Contract Management?

 

Contract management focuses on the organizational procedures that oversee the formation, execution, and assessment of relationships in order to improve corporate performance while reducing risk.

 

Contract management is critical to the success of your company - Because contracts are legally enforceable, they define a company's stakeholder relationships, price structures, the scope of work, rights and duties, project schedules, warranties conditions, and so on. 

 

Given the importance of contracts, good contract management may significantly enhance an organization's effectiveness. Similarly, unorganized contract management exposes your company to a variety of accounting and strategic hazards.

 

The function of contract management is changing as well. Contract management includes knowing every part of a contract's lifetime in order to extract relevant advanced analytics; it's no longer merely filing paperwork.
 

Contract lifecycle management is being used by businesses to enhance their performance and understand how they would effectively accomplish their objectives.

 

Also Read | Introduction to Smart Contracts

 

 

Aspects of an Effective Contract Management

 

It isn't enough for a company to have contract management specialists on staff. To meet growing accountability and statistical demands, employees must be reinforced by the presence of procedures and software companions. Organizations can expect to experience the following results after effectively implementing a contract management strategy:

 

  • The anticipated financial and economic gains are being achieved.

 

  • The provider is helpful and sensitive to the demands of the company.

 

  • There are no contract issues or surprises for the company.

 

  • Both parties are pleased with the service given.


 

Different Stages of Contract Management

 

Although contract management has numerous features, the process may be broken down into five distinct stages: development, cooperation, signing, tracking, and renewal.

 

Specific steps inside that phase can also be identified. In total, there are nine steps to the technique, which each corresponds to one of the 5 stages of Contract Management. This makes it simpler to deal with the end-of-quarter crunch that occurs when a fresh batch of contracts is due. The following are the steps for each stage:

 

  1. Creation

 

  • The first inquiries. Recognizing contracts and relevant documentation to substantiate the contract's objectives is the first step in the contract management process.

 

  • Creating contracts. Drafting a contract manually takes time, but with advanced automation contract management solutions, the procedure can be made much more efficient.

 

  1. Collaboration

 

  • Contract negotiations are underway. Workers should be encouraged to compare copies of the contract after writing it and mark any inconsistencies to save on discussion time.

 

 

  1. Signing

 

  • The deal is approved. The most common bottleneck is obtaining management permission. Users may prevent this by designing custom approval procedures that include simultaneous and serial certifications to keep decisions flowing quickly.

 

  • The contract's execution. The usage of electronic signatures and fax capabilities enables consumers to regulate and shorten the signing procedure while implementing the contract.

 

 

  1. Tracking

 

  • Management of obligations. This necessitates extensive project management to guarantee that stakeholders involved receive deliverables and that the contract's value does not deteriorate throughout its early stages of development.

 

  • Amendments and revisions. It's a challenging process to gather all of the documentation needed for the contract's first preparation. When issues are discovered that were previously neglected, processes must be in place to alter the original contract.

 

  • Reporting and auditing. Contract management somehow doesn't imply preparing a contract and then filing it away without further consideration. Contract audits are critical for verifying both businesses' compliance with the agreement's provisions as well as any potential issues.

 

  1. Renewal

 

  • Renewing. Manual contract management techniques might lead to missed renewal chances and wasted money. A business can find renewal resources and encourage new contracts by automating routine tasks.

 

Taking care of these nine processes is a big part of contract management. The importance of contract lifecycle management cannot be overstated. Contract managers must keep an eye on any possible modifications or violations of contracts as separate agreement types progress through their stages. 

 

If an employee or company is dissatisfied with their contract, it may be worthwhile to make changes. It's critical to adhere to contractual duties while also ensuring that both parties are satisfied.


Also Read | Project Management: Phases and Types

 

 

Advantages of Contract Management

 

Let's have a look at a few of the key advantages of contract management:

Advantages of Contract Management:1. Aids in the Management of a Company2. Enhances Operational Efficiency3. Compliance is Enforced and Improved.4. Suppliers are More Visible as a Result of This5. Increases Spending Transparency and Reduce Arbitrary Expenditure

Advantages of Contract Management

 

  1. Aids in the Management of a Company

 

Effective contract management will simplify how a company operates by structuring business expectations, and the processes required to accomplish them and allowing you to examine how the company's goals are met. Contract management insights may also assist find possibilities for optimization of revenue and expense reduction.

 

  1. Enhances Operational Efficiency

 

The use of software applications or solutions that streamline the contract management process is one of the biggest contract management practices. It boosts corporate productivity and reduces the scope of mistakes by eliminating manual labor. 

 

Personnel may devote their attention to more regarded as an essential part of contract administration, such as reviewing compliance with the terms and finding opportunities for development.

 

  1. Compliance is Enforced and Improved

 

Possessing a contract management system in place that prescribes terms and conditions as well as processes to be followed enforces and guarantees success among the necessary players. Increased compliance invariably aids in the reduction of a huge number of dangers within the company.

 

  1. Suppliers are More Visible as a Result of This

 

Suppliers are an important aspect of almost every business nowadays since the majority of companies rely on them for goods and services to help them function better. 

 

Contract management aids in the tracking of suppliers, the evaluation of their development by focusing on contract requirements, and the assessment of supplier risk. It also serves as a tool for establishing long-term, productive relationships with vendors, resulting in significant synergies.

 

  1. Increases Spending Transparency and Reduce Arbitrary Expenditure

 

Contract management streamlines administrative and effectiveness tracking by organizing an organization's relationship with its stakeholders, particularly its suppliers. It enhances the visibility of your spending and the transparency of where your money actually goes. 

 

One of the most serious problems that firms face is rogue spending, and better spend visibility can help you reduce illegal spending. Contract management may help you uncover a larger cost reduction potential for your firm by increasing expenditure visibility.

 

Also Read | Supply Chain Management Tools


 

Best Contract Management Strategies

 

  1. Agreements should be centralized and uniform

 

Contract generation is slowed when contracts are written from scratch. By standardizing and from before the contract wording and phrases, legal may save a lot of time. 

 

Contracts are generated faster in this manner, and other departments can establish contracts without having to include Legal. Contracts that follow a framework are easier to alter and examine because you can concentrate solely on the provisions that are unique to each transaction.

 

It is no longer an option to save your agreements in a centralized, searchable repository. Contracts are safe and convenient to find this way. When there is litigation, the significance of securely preserving contracts becomes much more apparent. Efficient regulatory record management demonstrates:

 

  • Who signed the contract?
  • The contract was accepted in its current form.
  • The acceptance date and time

 

  1. Keeping track of responsibilities

 

Many individuals sign contracts and then ignore them until something goes wrong. Contracts, on the other hand, take on greater significance when they are signed. Your company has commitments that you must track to ensure that you meet them, and in a large company, there might be hundreds of ongoing contracts.

 

To meet your contractual obligations, your contracts must be conveniently accessible. You can't follow or supervise a contract's implementation if you can't find it.

 

It's dangerous to rely on particular employees to keep track of obligations since mistakes are bound to happen. By giving you appropriate email reminders when your commitments are due, decent contract management software may help you keep on ahead of your duties.

 

  1. Determine appropriate key performance indicators (KPIs)

 

Patent lawyers are now under pressure to accomplish so much with so little and demonstrate their value to the company. To do so, Legal must transition from a reactionary to a constructive mindset, developing strategies to affect income and reduce risk. This will need the establishment of KPIs.

 

Set KPIs for the right reasons, not merely for the sake of setting them. The KPIs and metrics you should measure are determined by your aim. "What do you wish to improve?" is the first question. 

 

Your objective, for example, maybe to send out contracts more quickly. Then you may split it down into individual KPIs, such as speeding up contract creation and minimizing approval time.

 

  1. Collaboration and visibility within the team

 

In most businesses, contract management is primarily the job of legal. However, in order for Legal to guarantee compliance and eliminate risks throughout the firm, it must work effectively with the other divisions. It doesn't assist anyone when litigation is a roadblock in getting agreements done.

 

Providing common standards and procedures to other departments lessens your need to be engaged in just about everything. Contract management software like Ironclad may help you verify that contracts are approved by Legal before being sent out.

 

In addition, the law must make contracts transparent without jeopardizing data security. By assisting you in defining who has access to each process and record, the correct contract management system will assist you to strike a balance between visibility and control.

 

  1. Communications should be automated

 

Because emails are not centralized enough, using them for contract communication has several flaws. When sharing information, you can fail to provide the information of a relevant individual, or crucial information could get lost in email conversations.

 

Using contractual lifecycle management software (CLM) that monitors all activities and sends real-time information to key stakeholders in the standard protocol. By automating all interactions, you can ensure that no one is left out of the process at any point during the contract's life cycle.

 

  1. Clickwrap and a number of other signature choices are available

 

For many legal departments, getting contracts signed quickly remains a difficulty. Contracts can be signed in a variety of ways, including the typical wet ink signature. Electronic signatures and clickwrap have been generally accepted as legitimate methods of contract signing on the internet.

 

Contracting parties have come to anticipate a smooth signing process. This is accomplished using clickwraps and electronic signatures. Clickwrap makes signing contracts as simple as clicking a button, and it's especially useful for high-volume contracts such as website Terms of Service.

 

Contract management software like Ironclad allows you to integrate your contracts into the user's transactional flow, removing the complexity that comes with PDF and paper agreements.

 

Also Read | Overview of Operations Management

 

AI will have a huge influence on businesses all around the world. But it doesn't have to be a far-fetched fantasy. That now the innovation is already here, all that would be left for you to do is embrace the situation and choose the best technology partners for company requirements.

 

Artificial intelligence contract management may make your experience simpler, save you cash, and provide you with information about places you've never contemplated before. But it all starts with choosing a qualified vendor who will assist your goals and strategies as a real systems integrator.

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