From the time an agreement is drafted until it is carried out by the designated party, it is managed through the contract management process. The ultimate step is the termination of the contract. A crucial component of contract management is performance analysis in relation to the terms of the contract because it aids in maximizing operational and financial performance as well as identifying and lowering the financial and reputational risk brought on by non-compliance.
Keep Reading this article to find out what contract management and its importance.
The process of managing contracts, from creation to execution to eventual termination or renewal, is known as contract management or contract lifecycle management (CLM).
Contract drafting and clause negotiation are important contract management tasks, along with performance analysis to optimize operational and financial performance and risk mitigation on both a financial and reputational level.
Contract management software systems provide a centralized platform for contract creation, editing, tracking, and renewal throughout their entire lifecycle.
The advantages of a CMS include a central contract repository for information that makes it simple for your staff to find what they need and the consolidation of a variety of tasks into one device.
Additionally, CMS offers templates and other automation to reduce the amount of time spent on manual, repetitive tasks. Additionally, CMS has analytical reporting features that can be used to analyze and improve future contracts.
When forming an agreement, most businesses give contracts a lot of weight, but once the contract is signed, they often forget about it. But the lifecycle of a contract goes beyond its signing. The agreement should be guided by the contract throughout, and it should be regularly reviewed to make sure all parties are meeting their obligations.
But as the contract changes hands from one department to the next throughout the contract lifecycle, a lot of critical aspects of the contract process can get lost in translation. The annual revenue loss from poorly drafted contracts can reach 9%. Therefore, a contract management system can aid in maintaining the contract's relevance and accessibility at all times, keeping the agreement on track at all times.
Contracts are the foundation of business relationships, and they spell out every aspect of a business deal or supplier relationship from start to finish.
According to one report, Fortune 1000 companies have approximately 400,000 active contracts on any given day. That means a contract must be written, reviewed, negotiated, and approved 40,000 times.
All contracts need to be managed for their lifecycle, leveraging any negotiated clauses, monitored for compliance, and then reviewed again for renewal.
A single contract requires personnel from the legal, finance, and other departments, and they should all be handled manually. These manual, repetitive processes are obviously time-consuming and expensive, but they are also very error-prone, which results in additional costs, missed deadlines, and compliance issues.
Without effective contract management, you expose yourself to a host of risks, fines, and problems with procurement contract compliance issues. A small technical mistake or wording issue in the contract can cost thousands of dollars in the long run.
If you think of contract management, you may think about filing cabinets and dozens of folders. You are not alone if you still store your contracts on paper in filing cabinets, on a network drive, or by emailing scanned copies of the final version. Even today, there are still many multibillion-dollar corporations that operate this way.
The manual contract management practice is full of inefficiencies and risks that take away from the incredible value that contract management can bring.
Contract management software is an electronic approach to solving all of the errors that occur manually. Everything from organizing paperwork to authorizing contracts, negotiating and redlining, managing dates, reporting on performances, and automating workflows can be handled by contract management software. This software can take the friction out of the entire contract lifecycle.
There are contract management systems with AI capabilities that can even use AI to advance clause authoring, risk control, and prescriptive analytics.
Integrated contract management software can quickly liberate countless man-hours and automate every step involved in overseeing the contract lifecycle, boosting your business' bottom line.