Contract management software is a vital tool that streamlines and enhances the entire lifecycle of contracts. In a business world built upon digital contracts, managing these critical documents is something organisations want to prioritise. In this blog article, we delve into contract management software, exploring its definition, importance, key components and the pivotal role Document Management systems (DMS) have to play.
- What is contract management software?
- Why is contract management software important?
- What can contract management software do?
- Leveraging a DMS for streamlined contract management
What is contract management software?
It's important to start by differentiating contract management from contract management software.
Contract management is the process of governing contracts from the time of creation to the expiration or renewal of the agreement. The process of contract management involves creating, negotiating, executing, monitoring and analysing contracts. It includes tracking contract terms and conditions, managing performance and meeting all obligations. In fact, 89% of organisations don’t feel like their contracting process is “very effective” creating a sense of urgency within the industry to adopt new processes to enhance contract management. This is where contract management software comes in.
Contract management software is a digital tool used within contract management that focuses on how organisations create, track and manage their contracts and legal documents as electronic files. The software acts as a centralised hub, bringing together all facets of the contract lifecycle into a seamless and efficient process.
Why is contract management software important?
We all understand the importance of keeping contracts updated for legal compliance, but someone could do that by hand, right?
In short, yes, they can. However, it poses the question of how long it would take someone to do this manually — never mind that someone else will need to quality control it and the time it would take to fix issues if there are human errors within a contract. According to a study completed by Cottrill Research, up to 80% of business transactions are governed by contracts. For someone to go in and look at each of these contracts by hand, scan their contents and avoid making a mistake would be a miraculous achievement.
Utilising contract management software and automating processes provides more time to be spent on high-priority and rewarding tasks and can save an average of 92 minutes. Take Martinsclub, for example. As one of the largest support associations for people living with disabilities, the annual volume of documents is estimated at around 5,500. By digitising their documents and processes, Martinsclub saw greater transparency and efficiency, along with reduced errors due to incorrect filing, multiple copies and time-consuming search tasks.
Contracts are fundamental to commerce and everyday life, governing a wide range of transactions and relationships. For a contract to be valid, it typically includes the following elements:
- Offer and acceptance
- Intention to create legal relations
- Consideration
- Legal capacity
- Legal purpose
- Certainty and possibility of performance
The different types of contracts include:
- General business contracts: These include partnership agreements, indemnity agreements, non-disclosure agreements or NDAs, and property and equipment lease agreements
- Employment agreement: Details about the duties an employee will perform and the compensation they’ll receive
- Licensing agreement: Where one party agrees to allow another party to use a licensed product or service in exchange for royalties
- Unilateral contracts: Where one party makes an offer, the other party is only paid after they perform the outlined actions within the contract
- Bilateral contracts: Where both parties agree to perform something for each other
- Simple contracts: A verbal or written agreement that two parties enter into despite not legally recording or sealing the contract at any point
- Implied contracts: Where there’s no written or oral agreement
- Express contracts: Where two or more parties willingly agree either verbally or in writing
- Unconscionable contracts: Where a contract is deemed to be unfair or abusive to one of the parties involved
Efficiency, accuracy, risk mitigation and scalability are among the key advantages that make contract management software indispensable for modern businesses. By centralising contract operations, this software provides real-time insights into the status of contracts, enabling proactive decision-making and reducing the chances of contractual oversights.
What can contract management software do?
Here are some key functionalities and capabilities of contract management software:
Automate the process
Automation accelerates the entire contract lifecycle from contract creation to approval workflows and beyond. Templates and predefined rules automate the creation of contracts, reducing the time and effort required for manual drafting. Automated workflows ensure that contracts follow predefined paths for approval, eliminating bottlenecks and reducing the risk of oversight. The software automates the tracking of contract milestones and deadlines. Automated reminders and notifications help ensure that tasks are completed on time, reducing the risk of errors due to missed deadlines.
Minimise errors
Contract management software often includes libraries of standardised and legally vetted clauses. This ensures that commonly used and legally compliant language is consistently applied, reducing errors in contract drafting. The software also maintains version control, tracking changes made to the contract over time. This prevents confusion by providing users with the latest version, minimising the risk of errors caused by outdated information.
Collaboration features allow team members to work on contracts simultaneously. Real-time communication logs and feedback mechanisms reduce the risk of miscommunication and errors.
Contract management software can include validation rules to ensure that data entered into fields meets predefined criteria. This prevents errors resulting from incorrect or incomplete information.
The software further creates comprehensive audit trails that document changes made to contracts. This transparency helps identify who made changes and when, reducing the likelihood of errors going unnoticed.
Ensure compliance
Contract management software can be configured to conduct automated compliance checks by applying predefined rules and criteria, ensuring that contracts adhere to specific legal and regulatory requirements. Adopting the digitisation of contracts has boosted compliance for organisations by 55%. Automated notification systems in contract management software remind users of critical deadlines and milestones. Ultimately, this helps prevent oversights that could lead to non-compliance with contractual obligations.
Contract management software often includes customisable reporting tools that allow organisations to generate reports on compliance metrics. These reports assist in monitoring and addressing potential compliance issues. The software provides role-based access controls, so only authorised personnel can access sensitive contract information. This minimises the risk of unauthorised changes and maintains the confidentiality required for compliance. Contract management software may offer electronic signature capabilities, making certain that legally binding signatures are secure.
Authentication mechanisms help verify the identity of signatories, contributing to compliance with signature regulations. A centralised contract repository ensures that all contracts are stored in one secure location. Advanced search functionality allows for quick retrieval, facilitating compliance audits and reviews. Some contract management software can integrate with external databases that provide updates on regulatory changes. This way, organisations can stay informed and adapt their contract processes accordingly.
Adapt when necessary
The business and digital landscape is ever-changing, so organisations must stay on top of the change to keep operations flowing seamlessly. Contract management software facilitates collaborative working, meaning teams can work together on documents and involve stakeholders if necessary. Changes can be made quickly and insights can be shared between those working on the contract in one place.
A centralised contract management system works on the cloud, enabling it to work from anywhere in the world using any device at any time, meaning the need to wait for someone to receive a physical copy of the contract to make edits or sign. Reports say that the average Fortune 2000 company has 20,000 to 40,000 contracts at a given time. This report, created in 2008, highlights the incredible number of day-to-day contracts a business deals with. As the world becomes significantly more complicated, we can only assume that this number has risen dramatically over the last decade. Knowing this makes it clear that having a system that can handle this already large and continuously growing number of contracts is vital.
Contract management software is designed to adapt to handle larger workloads without compromising efficiency. Contract management software often integrates with other business systems, such as ERP, CRM and financial software. This integration ensures that contract data is synchronised across the organisation, allowing for a cohesive and adaptable approach to business processes.
Prioritise sustainability
Contract management software allows businesses to move towards becoming a paperless office. By digitising documents, contracts and related communication, the system reduces the need for paper, minimising the environmental impact of paper production, printing and disposal.
Leveraging a DMS for streamlined contract management
A document management system (DMS) helps you effectively manage contracts by systematically organising, tracking and protecting contracts and legal documents. Using a document management system has its own benefits that work with contract management software, including easy access, sharing documents as needed and guaranteeing all documents are properly stored and protected. It also protects your business, as it allows you to meet information and data security compliance requirements. While they’re often classed as two separate entities, 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 flexible for all contracts.
In essence, the marriage of contract management software and document management systems is a testament to the transformative potential of technology in modern business practices. The journey from contract creation to secure document storage becomes a seamless, adaptive and sustainable process, ensuring that organisations meet their contractual obligations and thrive in an ever-evolving business landscape. By adopting this integrated approach, businesses position themselves to manage contracts and optimise their operations, mitigate risks and chart a course toward enduring success.
Learn more about document management.
