The Ultimate Guide to Contract Management

The number of contracts a business must manage varies depending on the industry type and the business size. From service agreements to vendor contracts and everything in between, keeping track of all the different contracts can quickly become overwhelming. This is where contract management comes in.

Effective contract management is essential for any business that wants to stay organised, protect its assets, prevent loss, mitigate risks and comply with regulatory commitments.

In this article, we'll share what contract management is, why it is important and how you can implement a successful contract management system for your business.

• What is Contract Management?
• Why is Contract Management Important?
• What are the Advantages and Benefits of Contract Management?
• How Does Contract Management Work?
• How Do Different Industries Use Contract Management?
• Modern Tools and Technologies for Contract Management
• Best Practices for Successful Contract Management Implementation
• How to Start Implementing Contract Management
• Final thoughts

Contract management refers to the administration of contracts from the time of creation to the expiration or renewal of the agreement. It is a crucial process that every business should have in place.

It is important to note that there is not a one-size-fits-all approach to contract management. Every business has its unique requirements that should be considered and tailored accordingly.

The general process of contract management involves the creation, negotiation, execution, monitoring and analysis of contracts, including tracking the contract terms and conditions, managing performance and ensuring that all obligations are met.

Several essential components must be considered to ensure a smooth and efficient contract lifecycle. These components include — but are not limited to — contract repository, version control, audit trails and electronic signatures.

The contract repository serves as a centralised location for all contracts to be stored and accessed by authorised personnel. This makes it easier to locate contracts and reduces the time spent searching for specific documents.

Version control ensures that all parties involved in the contract management process are working with the most up-to-date version of the contract. This helps prevent any confusion or misunderstandings arising from using outdated documents.

Audit trails provide a detailed record of all actions taken within the contract management system. This includes who made changes to the contract, when those changes were made and what changes were made, ensuring accountability and transparency throughout the process.

Electronic signatures allow for contracts to be signed digitally, significantly reducing the time and resources required for contract management. Electronic signatures also provide a higher level of security and can be used to verify the identity of the signee.

Contract management aims to minimise risks and maximise benefits for all parties involved. By having a well-structured and organised system for contract management, businesses can avoid disputes and risks, comply with regulatory commitments, minimise legal liabilities, ensure that contractual obligations are fulfilled and, ultimately, prevent loss.

Contracts are legally binding agreements that outline the terms and conditions of a business transaction. They can include everything from sales contracts to employment agreements.

By managing contracts effectively, businesses can ensure they’re meeting their obligations under these agreements and avoiding any potential disputes that could arise.

Effective contract management can help businesses to better understand their financial and operational commitments, which can be critical for effective budgeting and planning.

Poor contract management can lead to significant financial and legal consequences for both parties involved. It can result in missed deadlines, incomplete work, incorrect billing and invoicing, and missed opportunities for upselling or cross-selling. This can cause delays and disputes that can ultimately lead to legal action.

Poor contract management can also lead to costly penalties and fines, damaged reputation and loss of future business opportunities. It’s crucial to properly manage contracts to ensure the success and longevity of any business relationship.

Contract management provides various benefits that can help businesses improve their operations, reduce risks and enhance their overall performance.

1. Improved Visibility: Contract management helps businesses to have better visibility into their contracts. It enables them to track contract terms, milestones and obligations, ensuring compliance and avoiding penalties.
2. Increased Efficiency: By automating the contract management process, businesses can improve efficiency and reduce the time and resources required to manage contracts. This can help them focus on other critical tasks that require more attention.
3. Enhanced Risk Management: Contract management can help businesses to identify and mitigate risks associated with their contracts. It enables them to monitor contract performance and identify potential issues before they become problems.
4. Better Negotiation: By clearly understanding contract terms and obligations, businesses can negotiate better deals with their vendors and suppliers. This can help them to reduce costs and improve their bottom line.
5. Improved Communication: Effective contract management requires clear and consistent communication between all parties, building stronger relationships and reducing misunderstandings.
6. Improved Compliance: Contract management can help businesses to ensure compliance with legal and regulatory requirements. By tracking contract terms and obligations, businesses can ensure that they meet obligations and avoid legal issues.
7. Increased Revenue: By optimising contract management processes, businesses can increase their revenue by reducing costs, improving performance and negotiating better deals.

Automating repetitive and time-consuming tasks can significantly streamline various business operations.

Here are some everyday use cases for process automation:

Invoice processing

• Data entry automation: Automatically extract data from invoices using Optical Character Recognition (OCR) and feed it into accounting systems.
• Workflow automation: Route invoices to the appropriate managers for approval based on predefined rules.
• Payment processing: Schedule and execute payments once invoices are approved, ensuring timely and accurate transactions.
• Reconciliation: Automatically match invoices with purchase orders and deliver receipts to verify accuracy.
  
  

Employee management

• Onboarding: Automate collecting new hire information, setting up accounts and assigning training modules.
• Time and Attendance: Track employee hours, manage leave requests and integrate with payroll systems.
• Performance management: Automate the distribution and collection of performance reviews, set reminders and aggregate feedback.
• Training and development: Enrol employees in required training programmes, track progress and certify completion.
  
  

Contract management

• Creation and approval: Automate the drafting of contracts using templates and predefined clauses and route them for approval.
• Tracking and compliance: Monitor contract terms, renewal dates and compliance requirements and send alerts for upcoming deadlines.
• Archiving and retrieval: Store contracts in a centralised repository for easy access and retrieval, with robust search functionalities.
• Renewal and termination: Automatically trigger renewal or termination processes based on contract terms.
  
  

Customer relationship management (CRM)

• Lead management: Automate lead capture from various sources, assign leads to sales representatives and track follow-up actions.
• Customer support: Automatically route customer inquiries to the appropriate support team, provide self-service options and track issue resolution.
• Marketing campaigns: Manage email campaigns, social media posts and customer segmentation for targeted marketing efforts.
  
  

Supply chain management

• Order processing: Automate order entry, track shipment statuses and update inventory levels.
• Supplier management: Streamline communication with suppliers, automate order confirmations and track deliveries.
• Inventory management: Automatically reorder stock based on predefined thresholds and forecast demand.
  
  

Human resources (HR)

• Recruitment: Automate job postings, applicant tracking and interview scheduling.
• Payroll: Calculate wages, process payments and generate payslips.

Effective contract management requires a systematic approach that ensures all parties involved are aware of their roles, responsibilities and obligations.

Contract management is a complex process that involves several stages, each playing an important role in ensuring the effective management of contracts. We've broken each stage down to make it clearer:

Initiation

The first stage is the initiation stage, which involves identifying the need for a contract and determining the objectives and expectations of the parties involved.

Drafting

The drafting stage comes next, where the contract is created in its initial form. This stage is crucial as it lays the foundation for the entire contract management process. The drafting stage involves detailing the terms and conditions of the contract, including the scope of the agreement, obligations of the parties, timelines and payment terms.

Negotiation

The negotiation stage follows the drafting stage, where the parties involved work to reach an agreement on the terms and conditions of the contract. This stage is critical to ensuring all parties involved are satisfied with the terms and conditions of the contract.

Monitoring

The monitoring stage is one of the most important stages of contract management. It involves tracking the performance of the contract and ensuring that all parties involved meet their obligations.

The monitoring stage helps to identify potential issues and enables the parties involved to take corrective action before the issues become significant problems.

Renewal

Finally, the renewal stage involves reviewing and renewing the contract if necessary. This stage is essential to ensure the contract remains relevant and up-to-date.

Contract Termination

If the contract isn’t renewed, it’s important to understand the contract termination process, which involves ensuring that all parties involved have met their obligations under the contract and that any outstanding issues are resolved.

Once the contract is terminated, all related documents and records must be properly archived and stored as evidence of compliance.

Contract management is essential across every industry. For example, in the construction industry, contract management ensures that those involved in a construction project meet their obligations and that the project is completed on time and within budget.

In the healthcare industry, contract management is critical in managing contracts with suppliers and vendors to ensure that the healthcare facility has the necessary supplies and equipment to provide quality care to patients.

In the technology industry, contract management manages contracts with software vendors and service providers to ensure the company can access the latest technology to remain competitive.

Regardless of the industry, effective contract management is essential to avoiding disputes, managing costs and achieving success.

With the help of modern tools and technologies, companies can streamline their contract management processes, improve collaboration and ensure that all documents are appropriately managed and stored.

Document management is an important consideration when it comes to contract management. Using a document management system has benefits, including easy access, sharing documents as needed and ensuring all documents are properly stored and protected. It also ensures that your business meets information and data security compliance requirements.

One of the most significant advances in contract management software is the use of online contract templates. This feature allows businesses to create standardised contracts that can be easily modified to suit specific needs, saving time and ensuring that all contracts are consistent and comply with legal requirements.

Another important feature of modern contract management software is electronic signatures. This technology allows contracts to be signed digitally, eliminating the need for physical signatures and reducing the risk of errors or fraud. Electronic signatures also make it easier to track the status of contracts and ensure they’re executed promptly.

Automated alerts are another critical feature of modern contract management software. These alerts can notify users of upcoming contract renewal dates, deadlines or other important events, ensuring that contracts are not overlooked or forgotten and that all parties are aware of their obligations.

Technology also enhances collaboration by allowing multiple users to access and edit contracts simultaneously. This feature makes it easy for teams to work together on complex contracts, share information and ensure everyone is on the same page.

Moving contracts to the Cloud and using a document management system reduces security risks, allows access from any device anywhere in the world and is frictionlessly flexible. DocuWare specialises in automating manual tasks, reducing dependence on paper files and delivering secure access to files anytime from anywhere. 

By following best practices in contract management, businesses can streamline their processes, reduce costs and improve their overall performance.

It’s essential to ensure that all agreements comply with legal regulations and that there is a clear understanding between the parties involved. To achieve this, businesses must have a well-structured contract management system in place.

The first step towards successful contract management is to analyse and optimise processes before automation. Before automating any process, evaluating the current process flow and identifying areas that need improvement should be carried out, as it will help to streamline the process and make it more efficient.

Once the process has been optimised, it can be automated using contract management software, which reduces errors and improves the overall efficiency of the process.

Continuous monitoring and adaptation of automated processes are also essential for successful contract management. Automated processes must be continuously monitored for accuracy and efficiency, and any arising issues must be addressed immediately to ensure the process remains effective in the long run.

Employee involvement and change management are also critical for successful contract management. Employees must be involved in the process and trained to use the contract management system.

Employee involvement and training ensures the system is used correctly and that all employees are on board with the changes being made. Change management ensures all employees know the changes and are comfortable with the new system.