All business agreements should be finalized with a contract. To mitigate any risk in those agreements and create strategic relationships, contracts should be managed through seven steps.
Contract management has taken on a bigger role in day-to-day tasks as businesses work towards increasing productivity without increasing their employee numbers. As the amount of contracts in business transactions grow, it’s imperative that contracts save time, not consume more of it. If the contract management process isn’t automated, however, it’s bound to do just that. Having a comprehensive understanding of the contract management process can minimize time spent working on administrative tasks and maximize strategy.
Stage One: Contract Preparation—Identify Your Needs, Establish Goals, Set Expectations, and Define Risk
Contracts are legally binding documents that should not be approached lightly. It’s important to be organized and prepared with the right resources. Properly identifying the needs, reasons, and ultimate goals that require a contract makes any decisions down the line much easier. Contracts should seek to define and mitigate risk in a relationship, looking ahead to any potential scenarios that could occur over the lifetime of the document and accounting for them in the contract. For example, the terms of agreement within a contract should address what happens if the client files for bankruptcy, goes out of business, or sells the company, along with any other contingencies that may arise.
Another example is a contract that is intended to set pricing terms for customers. One goal of this document should be to make sure the business is financially protected despite the scenario, and will be paid once the tasks outlined in an agreement are complete. A contract ensures that even if a business relationship is strong, each side is going to obtain exactly what is expressed in the contract.
Once the reasons for creating a contract are fully established, it’s time to begin drafting the contract.
Stage Two: Author the Contract
Consulting with In-House Counsel or an attorney is wise, especially if there are any uncertainties. Better yet, using a preset template drafted by your legal team to ensure all the information is up-to-date and all required clauses and terms are automatically included.
When authoring the terms of the contract, it’s also important to pay attention to specific wording. Any ambiguity leaves contracts up for interpretation, even down to a comma. State and country laws will also need to be taken into consideration, especially if the two parties are in different locations.
Stage Three: Negotiate the Contract
No matter how much research, planning, and preparation goes into the first draft of a contract, negotiation almost always follows. Negotiation should begin with transparency and trust. Anticipating and researching the other party’s needs before the conversation simplifies the process and creates a strong foundation for a lasting relationship.
As redlining begins, it’s easiest to use a contract management platform so both parties can view the working document to make changes and collaborate in real time. Email and offline documents can be confusing and cause costly mistakes, but a single source of truth for conversations and contracts will result in quicker negotiations and a contract that provides visibility for both sides.
Stage Four: Get Approval Before Finalizing the Contract
After negotiations are complete and both parties agree, next comes approval. In larger companies that need manager approval or have audit procedures, all the requirements for approval will need to be met before finalizing the deal. For example, if a company has specific procurement policies, they will need to be met prior to gaining approval for the contract. In a contract management platform, this is as simple as setting up an approval workflow so that whoever needs to approve the contract receives a notification and can view, edit, and comment on the contract in real time.
Stage Five: Execute the Contract
The signing should be the simplest part of a contract: both parties agree, the wording is exact, and the next step is simply making it official. However, many businesses make agreements across the country or even the globe, and getting signatures isn’t as straightforward as meeting in person. Especially if deadlines are tight or time zones are incompatible, overnight mail or even email may not be the best way to get signatures faster. A legally binding electronic signature can solve all these problems, allowing you to move faster, accelerating signatures and revenue.
Stage Six: Keep Up With Amendments and Revisions
Contracts are rarely stagnant. Revisions and amendments are a common part of the lifecycle of a contract. Tracking changes and the effects for each party can be confusing; however, this is another reason to implement a reliable process, such as a contract lifecycle management platform, to easily record edits and add amendments. It’s important to stay ahead of the changes and make sure both parties are fully aware and in agreement on any revisions.
Stage Seven: Manage After the Signature—Obligations, Auditing, and Renewals
Contract management doesn’t stop once the ink dries. Performing regular audits will ensure obligations are met and value is realized. Alerts should be set for deadlines and renewals. Missed renewals mean lost opportunities to continue a relationship, and most importantly for a company, lost revenue. Being aware and making contact well before the renewal time shows reliability and care for the relationship, and will continue to build trust and loyalty.
Contract management can be a time-consuming task, but if properly managed, can be one of the most lucrative areas for building business relationships and generating revenue. A contract lifecycle management platform simplifies contract management processes, providing the ability to manage and avoid risk and compliance issues through templates and approval workflows, streamline negotiations with online redlining, deliver more revenue and faster with e-signatures, and more easily manage documents after their signed helping organizations grab opportunities that may otherwise have been missed. Forward-thinking companies are turning to contract management platforms to reduce costs, mitigate risks, and increase profitability. Are you? Interested in learning more? Schedule a demo below.