Famed American talent scout and dealmaker Irving Paul Lazar once said, “I have no contracts with my clients; just a handshake is enough.” While this may have worked for him, this type of informal contract would lead to a mountain of issues for most companies.
Contracts play a crucial role for many businesses. They cover everything from how employees are expected to execute their responsibilities to how supplies are procured to how vendor relationships are maintained. As such, it becomes absolutely essential to draft and approve any necessary contracts that affect the workflow of an organization in order to avoid potential litigation.
That’s where contract management software can help. A contract management system enables companies to create new contracts and track the status of existing ones to ensure that employees, vendors and clients deliver on the stated requirements.
This guide can help potential buyers find the best contract management solution for their needs. Here’s what we’ll cover:
Contract management software allows users to track and manage contracts through the various stages of their lifecycles. These include:
Among other things, this type of software helps businesses with renewal notifications, compliance management, capturing digital signatures and managing contract templates, as well as document storage and version control.
Most contract management systems come with some or all of the following capabilities:
|Contract drafting||Allows users to standardize contracts by letting them drag and drop contract language from a library of approved clauses or sections. Certain solutions provide customizable, industry-specific templates.|
|Lifecycle management||Enables users to organize, track and automate the contract lifecycle. This includes monitoring contracts to enforce their obligations, understanding negotiation terms, collecting payments, seeking approvals and creating amendments.|
|Alerts and notifications||Allows users to monitor and keep track of contract milestones by sending automated notifications at predefined intervals. Also enables sending automated alerts to sales personnel associated with contracts nearing their renewal dates about entering into contract re-negotiations.|
|Compliance management||Allows users to monitor contract commitments and report any deviations from the approved workflow. Also enables users to benchmark contracts against existing regulatory frameworks.|
|Analytics and reporting||Enables the generation of customizable reports and dashboards to allow users to measure contract performance by metrics such as contract type, contract status, contract timeframe, account executive efficiency and revenue realization.|
|Document management||Enables users to store all contracts in a centralized repository for future reference. Also allows users to store standard contract templates and implement version control on different copies of the same contract.|
|Contract search||Enables stored contracts to be searchable. Certain solutions allow indexing by assigning metadata (e.g., author and file format) to documents in a library.|
|Third-party integration||Most contract management tools on the market are “best-of-breed,” focusing on a specific group of features. However, some solutions can integrate with other software, such as CRM, ERP and supply chain management solutions.|
Professional and business owners can realize multiple benefits as a result of adopting contract software, including:
Centralizing information. Contract management centralizes all contract related documents within a single location and makes them searchable for retrieval in the future. This process ensures that no contract is ever lost, enabling account executives to monitor contract commitments and track their renewal cycles.
Collaborative authoring. Large enterprises are usually bound by complex contracts involving several internal departments or external vendors. This complexity can sometimes result in several parties creating their own terms and stitching them together, which can lead to the different interpretation of contractual terms by the parties involved. Contract management software helps eliminate such loopholes by allowing different stakeholders to collaboratively author contractual terms and approve certain language and section definitions to avoid later conflict.
Compliance enforcement. Contract software allows users to monitor contract milestones by tracking important events such as periodic review dates or contract expiration dates. These solutions also provide alerts or notifications to account managers for contracts nearing their milestones, and can escalate reports if there are any deviations from the predefined workflow. Certain features can also enable the provisioning of time-dependent deliverables and help manage additional costs or penalties associated with the delays.
Choosing the right contract management software wil likely depend in part on the size of your organization. Consider the following buyer types:
Small and midsize businesses. These businesses typically operate as establishments with up to 100 employees and focus on specific operational areas. Such companies might consider a best-of-breed system that specializes solely in contract creation and electronic storage.
For example, small and midsize companies usually work on thin margins, which means it’s important for them to maintain the recurring cash flow that comes from contract renewals. Contract storage can be an issue, since such companies usually rely on hard copies or archaic file storage systems. A basic, no-frills contract management system is usually ideal for such organizations.
Large enterprises. Big companies typically operate in multiple operational areas with employees based at different locations. For such businesses, coordination is key. These businesses may want to consider a contract management system that is a modular suite, allowing them to pick and choose the different modules needed.
For example, organizations that have agreements where multiple internal and external parties are involved may want to consider a solution that allows them to collaboratively author terms with different stakeholders, automate the approval process, send automated alerts for tracking milestones, enforce contractual obligations and integrate with external ERP or CRM solutions.
Data analytics. Contract management vendors are quickly realizing the benefits and opportunities that data analytics provides in accelerating the decision-making process of organizations. Data analytics can be applied on a stored contract repository to measure the optimum amount of time an enterprise has to wait before making price concessions, helping them to negotiate better contract terms. Analytics can also help companies monitor their contract negotiation cycles, suggesting the best time for executives to begin negotiations if a contract has to be closed in a predetermined timeframe.
Blockchain technology. There is an increase in the prevalence of “smart contracts,” where automated computer programs are capable of executing the terms of a contract without a verifying authority having to be involved in the process. These smart contracts are created using blockchain technology, which houses and protects prior data and transactions. This technology can automatically execute a contractual clause as soon as a pre-programmed condition is triggered—e.g., the automatic release of payment for a package upon delivery without the user having to authorize the transaction separately.
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