The difference between contract management and effective contract management are huge. If your organization implements the best practice of contract management, you can see an immediate increase in revenuesand a decrease in both contract-related costs and employee costs.
There are eight components to effective contract management. When all eight of these are in place you will need fewer staff hours devotes to contract administration issues and you will be better positioned to take advantage of new opportunities.
Here are the eight components of effective contract management:
1. Version Control
You have to have a system for managing the different versions of draft contracts. Simply creating new file names in a file on the network isn’t enough. You need a document control system so that everyone involved with the contract is working on the same version.
This will also prevent the file from becoming corrupted.
2. Secure Access
Your contracts have a lot of sensitive and confidential information. A data breach could also put you in a breach of contract situation with your strategic partners.
You need a system that does two different things:
- Strictlylimiting access to contracts and supporting documents to authorized personnel
- Makes it easy for authorized personnel to access exactly what they need when they need it
Too many firms focus on security without also allowing for efficient access. If decisionmakers cannot get to the contracts when they need them, your contract management process has failed.
3. Workflow Management
Keeping contracts moving through the process is one the biggest problems in contract management. Often the sales team brings in a contract that needs approval, only to see the entire process slow down to a crawl. Papers get lost, and it takes weeks to get all of the required signatures and signoffs.
If you have a strong workflow management strategy, youwill be able to have alerts that let everyone know when they need to take action and that makes it easy for salespeople to track where the contract is in the process.
This will allow you to move contracts faster and start serving customers sooner.
4. Lifecycle Alerts
Most contracts hinge on a series of dates. Many contracts have expiration dates and auto-renewal dates. If you fail to take action by a date mentioned in the contract you could end up losing significant sums of money.
If you have a system of lifecycle alerts, you will never miss a critical date.
5. Compliance Alerts
Many contracts have different performance bonuses and penalties. Sometimes these different clauses are tied to specific dates and sometimes they are tied to specific actions. You already know how critical contract compliance is.
A system of compliance alerts customized to the specifics of your contracts can make the difference between your organization turning a profit or running a loss.
6. Template Management
Templates are great tools for increasing productivity and ensuring that your contracts have consistent terms as far as possible.
Proper template management practices keep templates updated and make sure that templates are not accidentally being overwritten.
Having specific templates, instead of just reusing older contracts, helps to avoid potentially costly mistakes in final legal documents.
There are a lot of mundane, repetitive tasks involved in contract management. Automating these tasks reduces your personnel costs and allows your skilled employees to use their time on more profitable tasks.
Some things that can be automated include alerts, workflow management, and even some basic contract drafting tasks.
8. Data and Analytics
Data and analytics are more than just buzzwords. They are valuable assets. Your contracts are loaded with data.
An effective contract management system can harness that data and allow you to get insights into where you are losing time and money and who your most profitable contracts are.
You need some system that allows you to generate easy to read reports and keeps your data organized.
The most efficient way to implement all eight of these effective contract management components is to use a cloud-based contract management system where these components are already built in. This saves you time and effort in trying to build a system from scratch, and gives you access to experts to help you implement the software.