Contract management best practices
Since contracts are central to most business functions and outcomes, a sound contract management process is crucial to success. Contract management gives legal teams — and their cross-functional collaborators — visibility into the business’ contracts, streamlines contract workflows, and mitigates compliance and other risks. Following contract management best practices helps your business make contracts a strategic advantage.
What is contract management?
Contract management is the process of organizing, automating, and streamlining all the contractual agreements within your business.
Contract management enables you to track and manage all your business contracts at every stage of the contract lifecycle and store them in a central location, allowing you to locate crucial data faster and with greater accuracy. It reduces errors, lowers risk, and improves collaboration, giving legal teams everywhere peace of mind.
Contract software like CLM automates tedious tasks and supports collaboration with procurement, sales, finance, and other teams. End-to-end solutions manage each stage of the contracting process — from contract creation to analysis — within a single platform, saving legal teams time and improving visibility.
Contract analytics software is technology that helps legal teams like yours parse their executed agreements. The best contract analytics software typically uses a centralized contract repository to store agreements, AI and machine learning algorithms to analyze agreements, and dashboards to help teams visualize the contract analysis and data.
Stages of contract management
There are several stages in the contract management process. The exact stages may differ slightly at each company depending on their goals and internal processes, but most contracts follow similar steps. Here are some common stages of contract management in modern businesses:
- Creation: A team requests a contract from legal, who then drafts the agreement from scratch or using a template.
- Negotiation: Next, the contracting parties redline the contract and try to come to a mutual agreement. Not every contract goes through the negotiation process — e.g. terms and conditions and some standard sales agreements are presented and signed as is.
- Review and approval: Legal and other contract stakeholders review the agreement and give the final okay. In high value deals, this stage can take longer because more stakeholders are required to review and approve the contract.
- Signing: Then, each contract partner signs the contract and finalizes the agreement. After it’s all signed, the contract has officially been executed.
- Storage: For contract storage, legal teams maintain copies of the contract and its audit trail.
- Fulfillment and analysis: During this stage, companies provide the goods or perform the services listed within the contract. Over time, they can review and analyze the terms of the agreement for business insight.
All together, these stages make up the contract lifecycle process and enable teams to keep track of their contractual agreements and know where they are and what’s in them at all times.
What are contract management best practices?
Contract management best practices are guidelines that improve the overall health of your business contracts and your contract management process.
Some contract management practices are more efficient than others. For example, drafting every contract from scratch is unsustainable as the business scales, while using automated templates promotes a more efficient contract creation process.
Some contract management best practices include:
Collaborate for smoother redlines
Redlining is a notorious sore spot in the contract management process, as it can take a lot of back and forth to agree on contract terms. Being flexible with your vendors or partners and compromising when possible can go a long way towards making the contract negotiation process less painful for everyone involved.
Streamline your approval process
Legal teams without a streamlined approval process spend more time than is wise trying to figure out who a contract’s approvers are and then more time tracking them down for a signature. Streamlining and automating the approval process cuts down the time to execution and follows contract management best practices by making contracting more efficient.
Centralize contract storage
Centralized contract storage is a crucial aspect of contract management best practices. For one, being able to track all your contracts reduces your risk and chances of breach. Additionally, centralized storage improves your ability to search for the contract you need as well as the terms within it, and it improves your ability to make updates whenever necessary.
Maintain contract compliance
Contract compliance is a strong indicator of the health of your contract management process. As new regulations are frequently introduced and business conditions change with the economy, businesses need to regularly audit their agreements to ensure they’re maintaining compliance. This also requires that businesses stay aware of the content within their contracts to track and fulfill obligations.
How do other departments benefit from contract management best practices?
In addition to making legal’s lives easier, contract management improves the work output of several internal stakeholders, including sales, procurement, marketing, and others.
Here are some ways that following contract management best practices benefits other teams in the business:
Improve website compliance with marketing
By staying up to date on relevant regulations, including privacy acts like GDPR and CPRA, legal can advise marketing on how to present privacy notices and capture consents on the website to maintain compliance. Also, legal will always be aware of what version of your website terms of service is live at a specific time.
Lower vendor contract management risks with procurement
A big part of contracting in procurement is managing vendor contracts. Contract management software helps legal teams quickly detect risk within contracts and spin up terms that align with company goals so that procurement can focus on getting the best deal for the business.
Improves collaboration between legal and sales
When legal adopts contract management best practices, sales teams not only have more autonomy over their deals but better visibility into the status of their contracts. There’s no longer a need for sales to hassle legal for updates because they’ll have everything they need.
What is the role of contract management software?
Contract Lifecycle Management (CLM) software helps your legal team and their collaborators to follow contract management best practices by streamlining the moving parts of the process and automating the contract workflow.
Some features that are helpful for following contract management best practices are:
Centralized, searchable repository
A centralized, searchable contract repository gives you full access to all the contracts in your business both pre- and post-execution. While keeping all your contracts in one place, the repository also allows you to search your contracts to identify and analyze trends.
Contract templates and clause library
CLM comes equipped with contract templates and a clause library to speed up contract creation. This enables self-service contract drafting and helps maintain consistency in contract language, lowering contract risk.
AI and contract analytics
Contracts hold a ton of crucial business data, but without contract analytics, it’s too tedious and time-consuming to uncover. AI and contract analytics help you organize and categorize contracts, then use the data to generate reports that help leadership teams make informed business decisions.
Contract workflow automation ensures that the contract gets where it needs to go without unnecessary human intervention. With notifications and alerts, stakeholders are instantly informed when it’s their time to review, approve, or sign the agreement. Workflow automation allows you to automate the collaborative contract process you’ve spent time building.
Contract management best practices are a boon to the entire business, as it ensures that the most important documents in your company are stored safely and executed efficiently. Following the best practices closely can give your business a leg up in the market and give your legal, procurement, and sales teams a break.