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. But the contracting process is not only intricate, but extremely important to the growth and success of any organization. Every contract represents a detailed look into a business relationship between your company and another party, whether it be customers, vendors, contractors, or even employees. These relationships are the tools that build your company’s revenue and reputation. For this reason, understanding the individual phases of contract management and how they fit together to create a pleasant business experience is a major key to growing the success of a business in any field.
The goal of contract lifecycle management (CLM) 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. Oftentimes, success depends on how well you manage your contracts. An efficient contract management plan will increase revenue, cut down on wasted time for both employees and third parties, and improve your overall client experience. Failing to navigate the steps properly usually results in plenty of missed opportunities and sometimes even legal ramifications if contracts are not designed properly with all obligations met on both sides.
One of the best ways to streamline your contract management process is to implement CLM software. Advanced legal-tech tools like these have the ability to automate miscellaneous steps in the contracting process, generating more efficient workflow and helping nail down a standardized timeline for each different type of contract your organization utilizes. Read on to learn more about each phase of CLM and how a proper CLM tool can help your business gain a better hold on its contracts.
Phase One: Pre-Award
The pre-award phase of contract management involves two major steps: contract requests and assembling or authoring the contract documents. Let’s begin with the earliest point in the process, contract requests. This first step is arguably one of the most crucial moments in a contract’s lifecycle, as it can set the tone for the rest of the business exchange. When submitting a request involves a lot of confusing steps, miscommunication, or delays, it will often result in those same delays and confusion permeating the remainder of the process. Therefore, it’s extremely important to make sure your contract requesting process is as efficient as possible. One of the best ways to do this is to utilize CLM software. Most CLM tools will allow you to create an interface that provides a centralized space for clients to submit requests with as much detail as necessary in order to avoid miscommunications and stay on track.
Authoring and assembling documents is the next step in the contract management process. Since the contract itself essentially provides the detailed outline of the business relationship in terms of the obligations of both sides and what terms have been agreed upon, it is crucial that the language in your contracts is precise and easy to understand. Clear communication between all the involved teams is key, and emailing drafts back and forth may result in missed deadlines, dropping important clauses, or even losing an entire version of the document. Most CLM tools can help reduce these issues by creating one centralized place where all versions of the document exist and are accessible to everyone at the same time. A completely online editing interface allows teams to make real time changes to a document from different locations, ensuring that everyone is always on track with the latest updates.
Phase Two: Award
The second phase of contract management involves two more important steps: negotiation and approvals or signatures. Negotiation requires external communication as well as internal communication, increasing the likelihood of using incorrect versions of a document or missing changes made by the client. These sorts of mistakes can have a huge impact not only on delaying the contracting process, but also on the contract’s overall value and the relationship being built with the client. CLM tools offer a convenient way to make sure all voices are being heard throughout the negotiation process, once again providing a centralized viewpoint for all parties to be able to see and make changes. The “clause ownership” feature available with some software gives the benefit of knowing who added which clauses and can even notify the author when changes are made to that specific clause.
Approvals and signatures are the final step of the awards phase in contract management. Approvals must be handled in a timely fashion in order to make sure that all the agreed upon terms are still fresh and up to date upon being finalized. For example, some clients may be relying on pricing options that are only available for a limited time. Missing that window will result in a re-negotiation of price and slow down the process while possibly harming the relationship with the client. CLM software can help you and your team stay on track throughout the contracting process and automate approvals to reduce the risk of delays. These tools are also extremely helpful when it comes to obtaining signatures. In the past, the need for wet signatures from various parties, often in different locations, was a cause for major delays in the finalization of contracts, but CLM tools offer convenient electronic signatures to make obtaining signatures much more efficient.
Phase Three: Post-Award
The post-award phase of contract management is where all the hard work from the previous stages finally comes to fruition. It consists of contract compliance by meeting obligations as well as future contract renewals. Without proper contract compliance after signatures have been exchanged, all the earlier steps in the process are rendered meaningless. The best way to ensure that a client relationship stays strong and healthy is to stay ahead on meeting the contractual obligations set out in the terms and conditions in the finalized contract. Without a good follow-up procedure in place, it can be easy to miss deadlines or emails from clients. CLM software can be extremely helpful during the contract compliance stage, as many of the features are designed to keep employees on a steady timeline with automated reminders about important dates, tasks, and status reports. Keeping track of this timeline may also assist your company with developing a better overall contracting process by outlining the exact amount of time a contract takes from start to finish as well as providing details about customer satisfaction or client experience.
Not all contracts are subject for renewal, as some may represent a simple one-time transaction, but for many organizations, contracts can be ongoing with a client or third party for years. And, as your business expands, taking on more and more contracts with various dates and obligations to track, contract renewals can become a source of easily avoidable mistakes. Failure to follow up on renewal dates may lead to missed opportunities and even lost revenue or clients. However, a CLM tool takes much of the hassle out of this step by way of automation. Reminders and calendar alerts ensure that a renewal date is never missed while contract analytics can provide better insight into the timeline of different contracts and how their renewals should be laid out.