Introduction:
Contract management is a critical process that spans the entire lifecycle of contracts within an organization. From initial request to final execution, effective contract management ensures that agreements are created, negotiated, and administered seamlessly. This comprehensive process, also known as Contract Lifecycle Management (CLM), involves multiple stages that require careful coordination between various departments and stakeholders. By optimizing these stages, businesses can enhance efficiency, mitigate risks, and ultimately drive revenue growth.
Synonyms
- Contract lifecycle management
- CLM
- Administration of contracts
Contract Management Stages
Contract management includes all contract lifecycle stages. Organisations simplify every stage with strategies, techniques, and concepts. A holistic approach is crucial. A lag at any level can slow response times, waste administrative work, and cause prospect irritation that harms customer journeys.
The stages make form a whole experience, but each has unique obstacles and needs. This is why it’s crucial to identify each one and develop unique tactics for simplifying and optimising them.
Process includes:
1. Request contract.
After finalising a sales quote, sales personnel notify Legal. Legal will create a contract with all product and pricing details from the quote.
2. Negotiating contracts.
Salespeople present contracts to prospects to start negotiations. The deal desk negotiates and approves contracts in various companies. Sales or deal desk reps adjust terms and conditions
until they reach a deal with the prospect.
3. Acceptance of contract.
Before permitting the prospect to sign, all company stakeholders must accept contract changes. It usually includes department managers, executives, and Legal.
4. Contract execution.
Contracts are stored for convenient retrieval in compliance or dispute situations.
5. Contract renewal/termination.
Pricing and other terms must be evaluated and adjusted for licence renewals or co-terming. The contract may expire without renewal.
Not all contract management steps occur in order. Negotiations may result in unapproved contract terms. The deal would shift between negotiation and approval. If terms and circumstances change during renewal, negotiation and consent may be needed.
Contract Management Issues
Effective contract management exposes inefficiencies and bottlenecks so firms may manage the contract lifecycle throughout. Companies should develop strategies for each stage’s obstacles. The complete process’s experience for prospective customers must also be considered.
Without considering both, inefficiencies reduce income opportunities.
Challenges:
1. Fast, precise contract terms.
Fast, precise contract terms. Legal must assure complete and precise terms. Contracts must be generated rapidly to avoid delaying a deal. It’s hard to balance these goals.
2. Compliance with business and legal policies.
Compliance with business and legal policies. Even if management and executive leadership teams change commercial and legal policies, contract conditions must match them.
3. Bundling and cross-selling maximised.
Making contracts that maximise revenue by supplying the optimal product combination is difficult and error-prone. Time constraints during competitive trade negotiations make it easy to miss.
4. Establishing departmental communication and approvals.
Establishing departmental communication and approvals. Multiple department permissions and reconciliation are difficult. Keeping a single source of contract truth correct is tough. Several “final” contract versions are often created after a negotiation.
5. Simplifying negotiations with prospects and leads.
Prospects may need internal approvals to amend contracts during talks. It’s difficult to keep communication simple and fluid without hindering the agreement.
Contract management issues can increase administrative burdens and revenue for organisations if not handled appropriately. Due to their failure to streamline internal processes, 42% of organisations lose income, according to research.
Sales Cycle and Contract Management
Companies must also realise that sales cycle bottlenecks and inefficiencies are one of the key drivers of contract management income leakage. Executive leadership teams seeking to prevent CLM revenue leakage should first evaluate their sales quotation and proposal generation process.
Manual quoting sales teams cannot eliminate CLM revenue leakage. Reps waste a lot of time searching pricing and product documentation and requesting discount permission. Bundle upselling and cross-selling are often overlooked. Sometimes the final quote is inaccurate, so reps must keep revising even as the sales proposal stage approaches.
Legal must create a sales proposal with current policy terms and conditions during negotiation when the quote is finalised and the deal enters contract management. Change requests and approvals need a lot of administrative work and revenue loss to maintain accuracy and version control.
Understanding that revenue leakage is not the only way these inefficiencies prevent firms from maximising revenue impact during the sales lifecycle is crucial. Another key component is speed.
Research suggests that 50% of prospective deals go to the first company to react. Companies reply to buyers more slower due to manual quoting and CLM processes. That allows competitors to reply first, reducing closed transactions.
Contract management inefficiencies can also leak revenue in the subscription lifecycle. Contracts and subscriptions evolve. Sales reps need historical subscription data from your CPQ to make informed quoting decisions for individual customers and track subscription trends.
In conclusion, organisations that optimise sales processes and combine quotation generating and contract administration will boost revenue. That needs automation. This is why today’s top sales teams use sales technology to alleviate manual processes and sales cycle bottlenecks.
Automation Contract Management Workflow
Contract management workflow automation automates contract lifecycle activities from start to finish. Automation of contract-related procedures and processes improves productivity, reduces errors, and speeds decision-making.
Contract management tasks can be automated using workflow automation:
- Contract creation and approval
- Tracking contract responsibilities
- Managing contract changes
- Producing contract performance reports
Workflow automation may save time, money, improve compliance, and boost contractor visibility when done properly.
What Contract Management Software (CMS) do?
Best Contract Management Software automates contract management workflow to support sales teams throughout the lifetime. Without it, stakeholders waste time on automatable chores. Understanding these contract management functions is crucial:
- Lifecycle contract management. The difference between quoting, contract, and proposal is very crucial. The usual definition of a “contract” comprises all of these steps: pricing/product terms, legal jargon, and a proposal.
- However, this definition of ‘contract’ is overly wide and limited. Sales quotations (price and product combinations) are missing, making it too broad. Too limited because it includes all redlining and approval workflows, including e-signature to conclude the sale. Creating the contract, attaching it to a proposal, tracking revisions throughout negotiations, and signing the final agreement are all part of CMS.
- Templating. Companies routinely include legal or business jargon in contracts. CMS automatically includes this language. Advanced CMS can auto-populate contracts with deal-specific clauses and provisions (depending on items, countries, etc.).
- Redlining. During talks, stakeholders change. Given that this procedure is dynamic and often changes, it’s impractical to create a new agreement for each change. CMS lets stakeholders suggest modifications to certain contract sections without affecting the remainder. This is ‘redlining’.
- Versioning. Edits to the initial contract are managed using versioning. As negotiations progress, stakeholders will shift. Manual approaches sometimes lead to many contract ‘versions’ since stakeholders make changes separately. CMS automatically tracks stakeholder changes throughout negotiations. The software displays the current contract because it maintains a single source of truth for all updates.
- E-signature. CMS resembles paper signing. E-signature gives a digital agreement the same legal force as a paper contract.
Users of Contract Management Software
Many pieces must work together in contract management. Thus, many stakeholders in an organisation use CMS. Every stakeholder has responsibilities that automation can optimise, streamline, and increase efficiency and profitability.
Here are the benefits of company departments and roles:
- Executive management. Automating contract management helps C-suite leaders implement strategic decisions across the organisation. Empowering employees to eliminate administrative tasks lets them focus on their main duties.
- Operation managers. Operations managers can help teams streamline intra- and inter-process workflows. Teams can automate long manual processes internally. Automatic notifications and version control improve cross-departmental collaboration.
- Sales teams. Sales teams gain many benefits. First, they know prospects’ contract terms match the approach. Second, using a single source of truth, they may negotiate conditions without miscommunications. Third, e-signature makes closing the deal easy when the prospect is ready.
- Client success. Optimised workflows improve customer and prospect experiences. Significant friction reduction accelerates lifecycle. Contract information is always correct, boosting firm trust. Contract receipt, negotiation, and completion are efficient, decreasing frustration.
- Finance. Finance teams can appropriately assess a deal’s financial impact by including the right legal and commercial conditions in a contract. Version control also ensures the deal’s financial terms match the parties’ agreements.
Contract management software benefits practically every department. It’s one of the most essential investments leadership can make to improve cross-departmental cooperation, accuracy, and customer service.
Contract Management Software Benefits
Stakeholder benefits from contract management software benefit organisations overall. Here are five major contract management software benefits for companies:
- Enhanced compliance and risk minimization. CMS includes updated liability limitation provisions to avoid legal issues. Stakeholders can also track updates and spot problematic language due to revision transparency.
- Produce and operate efficiently. Eliminating manual processes with CMS streamlines the entire lifecycle. Increased visibility makes cross-departmental communication easier and more precise, reducing mistakes and redo effort.
- Improved contract accuracy. CMS minimises manual errors and keeps contract language current by auto-generating commercial and legal contract language.
- Enhanced discounted visibility. CM discloses sales rep discounts in addition to contract terms, preventing reps from “going rogue” and undercutting profits or making a contract unprofitable.
- Engagement alerts. Many departments must collaborate to maintain a contract throughout discussions. CMS automatically alerts stakeholders when input is needed. This avoids laborious email sending and sends notifications promptly to keep projects moving.
- Quote contract customisation. CPQ contract management software lets you use custom data, set line item kinds, and create custom rules to assure contract compliance. Customising contracts during quoting speeds the contract cycle and minimises review and approval delays.
Contract Management Best Practices
Use the list below to ensure your company follows contract management best practices and makes the process simple, efficient, and effective.
Create pre-approved contract language
Departments shouldn’t waste time reproducing contract-wide wording. Legal should design and maintain this ‘boilerplate’ language. Any applicable agreement can automatically include good CMS. This is more efficient and lets Legal work on more complex or unique requirements.
Set KPIs
Contract management is like any other business activity. Companies should state their aims and hold stakeholders accountable. KPIs might reveal workflow and accuracy issues. The average approval time, contract creation time, and accuracy rate are examples.
Audit Contracts
Regular contract management audits should check compliance and correctness. Check all contracts for legality and anti-liability language. Make sure business terms and conditions match the strategy. Failure to check for errors might result in fines and lost revenue.
Also check execution. Do your partners follow your terms? Do you follow up with non-compliant providers? Overperforming (“scope creep”) on your own duties?
Allowing signees to sneak under the radar or pressure you into performing more than you promise to can cost you revenue.
Be proactive
Contract management can be laborious or hinder deal-making. This function is crucial. We must solve issues fast. Don’t use one-time solutions or wait until an issue arises.
Business changes continually. Check workflows and provisions. Early detection prevents unexpected underperformance and costly mistakes.
Conclusion:
In conclusion, contract management is not just about overseeing legal agreements; it’s a strategic function that impacts an organization’s bottom line. By leveraging contract management software and best practices, companies can streamline workflows, improve compliance, and enhance customer relationships. This proactive approach not only reduces administrative burdens but also positions businesses to capitalize on revenue opportunities more effectively. As organizations continue to evolve, investing in robust contract management processes remains essential for sustained success in today’s competitive landscape.
