On the surface, contracts may seem like a formality to most business relationships, simply an agreement to sign and file away without ever assessing it again. In reality, there is a wealth of knowledge hidden inside an organization’s contracts. Every contract provides a detailed look into that particular business relationship between your organization and another party, whether it be customers, vendors, contractors, or even employees. Companies depend on these relationships as the means to build both revenue and reputation. The valuable data locked inside your company’s contracts may be the key to improving workplace efficiency, increasing revenue, and boosting your business experience. For these reasons and many more that we will discuss throughout this article, having a good contract management strategy is the key to fully utilizing the knowledge your contracts can provide.
Contract lifecycle management (CLM) is essential for every business working with contracts, regardless of its field. Of course, each area of expertise, whether it be government, healthcare, or commercial, will have its own unique needs when it comes to managing contracts, but there are also general strategies that apply broadly across many fields. The goal of contract management is to oversee each step in the contracting process in a way that maximizes efficiency by eliminating extraneous procedures and automating the more mundane tasks that do not require much hands-on attention. Though there are many subtle procedures within the contracting process, the three biggest steps include creation, negotiation, and approval. Implementing good CLM strategies will help make each of these steps a little easier.
Why You Need Contract Management Strategies
Contract management strategies open up a world of improvements for any company that decides to take full advantage of them. As we mentioned, the main goal of these strategies is to increase overall efficiency in business relationships. Subsequently, this increase in efficiency will lead to boosts in a variety of areas around the organization, one of the most important being a revenue increase. Faster processing times for contract negotiations and approvals means more sales being completed in a shorter amount of time, leading to an obvious boost in profit. In a similar vein, having an efficient contracting process also improves customer experience. No one likes to spend extra time pouring over unnecessary details in the negotiation process. Cutting out or automating extraneous steps makes the experience of doing business with you more pleasant, meaning that clients are more likely to recommend your organization to others. Once again, more sales and more relationships will lead to revenue increases.
Another area where CLM strategies are useful is in boosting workflow and helping employees. With less time spent on unnecessary steps or small tasks that could easily be automated, employees can dedicate their attention to more pressing matters, such as mitigating potential risks, catering to clients, or looking for more ways to improve the contracting process. This
increase in efficiency not only improves productivity, but it also gives employees a better understanding of the individual role they play in the business relationship and the overall contracting process so that they can perform better.
5 Strategies to Improve Contract Management
Every company has its own unique needs to keep in mind when creating the best contract lifecycle management process. Below, we have provided an introduction to 5 contract management strategies that can be used by any organization operating in any field of business to jumpstart efficiency and start on the path toward building your ideal contracting process. Let’s get into it!
1. Know Your Business Partner
With profits, products, and services on the line, it is always important to have a good idea of the party that exists on the other end of your contract. Though it may be uncommon, risks such as fraud or theft are possible, and you need to make sure that the other party will be able to meet the needs of the anticipated contract before entering into it. For this reason, the first step in many contract processes should be a legal and business background check. This will ensure both parties are undertaking the contract honestly and can adhere to the requirements proposed by each side.
Similarly, establishing points of contact within the other party is another essential piece of the early contracting process. Meeting with the board of directors for each step of the process can be quite difficult, but you may need to have a direct line of contact with someone who can speak on their behalf throughout the negotiation process. Indicate who has the authority to make decisions on both sides in order to ensure that no miscommunications occur.
2. Make a Schedule
Having a timeline or schedule in place that establishes when certain steps in the process need to be completed is an excellent way to make sure every procedure stays on track without lagging behind. The schedule may include deadlines for specific documents, drafts, and revisions as well as fixed dates for meetings and discussion. A clear timeline allows you to reduce confusion on both sides of the agreement and avoid unnecessary delays caused by miscommunications.
3. Prepare a Letter of Understanding
After preliminary discussions have begun with another party, it may be helpful to provide them with a letter of understanding prior to beginning the actual drafting of the contract. The letter details the essential requirements that must be met in order for the contract to come to fruition. With these terms outlined clearly, you can be sure that both parties understand the non-negotiable terms that lay the foundation for the preliminary drafts of the contract, streamlining the process by eliminating extra negotiation steps later.
4. Plan Performance Reviews
An often overlooked aspect of the contract lifecycle is ongoing performance. While some contracts are short-term and require only an exchange of goods upon agreement, many are also long-term, needing a certain amount of continuous care and attention even after the contract has been signed. In these cases, you must be prepared to evaluate how well your company is performing and consistently meeting the prolonged terms of the contract. Pay attention to renewal dates or follow-up meetings and make staying in touch a priority.
Performance reviews can also be a great moment for all the employees involved in the negotiation process to take a step back and review how it went. Gather employees together in a meeting and examine each step in the process to determine which procedures work well and which could use improvements.
5. Implement a CLM Tool
The world of legal-tech is expanding at a rapid pace, with hundreds of CLM tools available on the market. Each one showcases a variety of features that can appeal to your company’s specific needs, but two of the main attributes you should always look for are a database and data analysis. Your CLM tool’s database acts not only as a record for all your past and future contracts, stored in one convenient online location, but it also provides you with the ability to analyze data from your contracts and use it to improve your contracting process. A database is also a great way to create templates which cut tons of time out of the drafting process.
Closely managing your company’s contracts may sound like a mundane or irrelevant task, but there are immense benefits to be gained from placing careful attention on honing your contracting process. Follow these 5 simple contract management strategies to improve your overall contracting process, create a better business experience, and boost the efficiency of your workplace.