What is contract management?
The process of managing contracts as they go through their lifecycle, as well as the overall auditing and governance of the contracting process, is known as contract management. A typical contract lifecycle begins with a contract request. It passes through stages such as authoring, approval, and negotiation before its execution. The contract lifecycle, however, does not culminate with its execution. Amendments and renewals are also a part of the contracting process.
As the business landscape becomes increasingly regulatory, contract managers are considering risk mitigation and contract governance as critical parts of the contract management process.
The phases of contract management
The typical contract management process can be grouped under three aspects: pre-execution, post-execution, and contract governance.
- The sales or procurement team raises a contract request. A contract manager takes up the contract request and drafts the document using a template.
- The contract manager sends the contract document to internal stakeholders for approval to ensure they are aware of potential opportunities or risks early on.
- Both parties discuss the terms and clauses of the contract in detail and arrive at a final version.
- The parties bring the contract to life by manually or digitally signing the contract document.
- Amendments, if any, are made to the contract after a discussion between the parties.
- The parties discuss and decide to renew or extend a contract beyond the original date.
- The contract owner assigns obligations to stakeholders and ensures their fulfilment.
- Admins store all of a company's contracts in a central storage space or on the cloud to ensure quick access.
- Admins conduct an audit of the company's contracts periodically to stay compliant.
- If the company has a CLM system, contract managers derive valuable insights from reports that help refine the contracting process and impact company strategy.
What is contract management software?
Contract management software is a tool that helps businesses author, negotiate, and sign contracts digitally. It streamlines the contract lifecycle and automates the contract management process, thus helping reduce contract cycle times, mitigate risks, and improve governance and compliance. Most contract management software offers a central repository to store all of a company's contracts, providing improved visibility and better control over the contracting process.
Modern contract management software vs traditional approaches
Problems with the traditional approach
How contract management software helps
Contract authoring is time consuming and error prone since contracts contain numerous pages that must be drafted and checked manually. It is also difficult to maintain language consistency across contracts.
Contract management software offers predefined and custom contract templates, and an extensive clause library. While ensuring language consistency, they also speed up contract authoring and minimize the chances of errors.
Negotiations can go on forever and involve many back-and-forth emails that can be difficult to track.
Contract management software makes the negotiation process seamless with controlled access to contract documents and a negotiation history with the ability to compare older versions of the document.
Identifying and amending contracts in the event of an organization-wide policy change is difficult as contracts are stored haphazardly.
Contract management software offers central storage space for all your contracts. They come with search and filter options that make locating and accessing contracts easy. Clause-based reports help admins identify contracts with specific clauses, making it easier to make amendments.
A separate app or software needs to be employed for the digital signature of a contract. Or the physical document needs to be mailed, printed, signed, and faxed to carry out the process manually.
Most contract management software comes bundled with secure e-signature software. These e-signature software offer military-grade encryption and are compliant with e-signature laws, such as ESIGN and eIDAS.
The chances of missed renewal opportunities are high due to the lack of automated alerts regarding expirations or similar reminders.
Contract management software offers automated alerts and reminder notifications to ensure you never miss out on renewals.
Auditing is a time-consuming and painstaking process as admins need to dig through pages of contract data and track all the activities associated with contracts.
Auditing is simplified with contract management software as they offer a central audit system that stores all the activities performed by all the users in the organization. Some software also provides user access, downloads, and activity logs that give admins better control over the system, fast tracking the auditing process and improving compliance.
Managing contracts on the go is challenging as documents are primarily housed in physical folders or scattered across various applications.
Advanced contract management software comes with a mobile application that lets you manage your contracts while you are on the move.
Who is contract management software for?
By size Contracts are a critical part of every business. They govern all the commercial transactions of your company and can impact your business legally and financially if contractual obligations are not fulfilled. Contract management software is a valuable tool for any business, be it a start-up, mid-level, or enterprise company.Contract management software aids in faster revenue recognition, reduced operational costs, improved buyer experience, and shorter contract turnaround times. The software adapts to the needs of a business as it scales and helps derive maximum value from its contracts.Read how SolveCube reduced its contract cycle times by 45% with Zoho Contracts.
By industryWhether you are in real estate, finance, or software, your company is likely to deal with a considerable number of contracts. As you scale, the number of contracts you sign will only go up. Contract management software does not just replace your physical contracts with digital ones, it streamlines your contracting process and improves compliance. Contract management software can be customized to your business needs, such as enabling you to sign documents on white paper or stamp paper depending on your industry.
By departmentContracts are not restricted to the legal department. They encompass all business departments, including sales, finance, HR, and procurement. Here's how contract management software can help various departments in your business.
Legal: Legal teams save time with a structured approach to contracting with predefined contract templates, an exhaustive clause library, and streamlined workflows. Contract management software helps legal teams focus on high-value tasks, compliance, and performance as it digitizes the entire contract management process. Contract management software empowers legal teams with valuable insights through analytics and reports that help refine the contracting process. With a central repository, audit logs, and data protection features, staying compliant is no longer an issue for legal teams.
Sales: Sales teams can focus on closing deals faster as contract management software streamlines the sales contract cycle with automated approval workflows and digital signatures. With templates, salespeople can quickly author error-free contracts and share them with clients. The central repository, with advanced search and filter options, helps salespeople access contracts in no time. Controlled access to the software given to the counterparty aids in seamless negotiation and an improved buyer experience. Contract management software also allows sales teams to plug revenue leakages by offering automated renewal alerts and reminder notifications. Analytics and reports aid in making future projections, while obligation management helps keep track of all obligations and ensures there are no unfulfilled promises.
Finance: Finance teams can stay compliant with government regulations and maximize the value realized from contracts with contract management software. In the event of a new government regulation that necessitates organization-wide policy changes, contract management software offers advanced analytics and reports that help the finance department quickly implement changes to agreements. Negotiation history and comparison features that compare contract versions are offered by most contract management software and help CFOs analyze contract terms that can expose the business to risks and empower them to advise on terms that help minimize costs and improve cash flow.
Procurement: With accelerated contract authoring, smooth negotiations, improved performance monitoring, reduced risks, and deeper insights, procurement teams can ace vendor agreements with contract management software. Cross-functional collaboration between departments eliminates information silos and engages relevant stakeholders at the right time. With advanced analytics, procurement teams can refine processes and optimize spending during contract negotiations. The personalized dashboard offered by contract management software provides information on the total value of your buy-side contracts. It calculates the gain or loss of your terminated contracts to help you track your financials and optimize spending.
HR: Contract management software helps HR teams manage employee contracts better. HR representatives can create error-free employee contracts with predefined and custom contract templates. Approval workflows ensure related stakeholders are abreast of an employee's contract information, while the central repository helps necessary parties quickly access all contracts associated with a particular employee.
Evaluating the contract management process
Ask yourself these questions to evaluate your existing process and decide whether it’s time to invest in a CLM system:
Questions to consider
Yes/No
Are your contract templates stored in a central repository with well-defined access control?Do you have a set of legally-approved clause languages for business users to choose from while authoring or editing contracts?Is there a process in place to constantly update clause languages to the latest industry standards?
Do you have an approval process for stakeholders to stay aware of risks and opportunities at an individual contract level?
Do your negotiations happen online, where you can track changes, view negotiation history, and compare versions?
Do you still sign contracts on physical paper?If you use e-signatures for your agreements, can you configure signature workflows for them?
Do you track the contractual obligations of each contract? Is there a way to monitor their progress?Have you missed contractual obligations or important milestones (renewals, expiry) due to a lack of automated alerts?
Can you track activities at the individual contract and user levels? Are they stored in a central audit system?Do you conduct regular contract audits?
Do you measure critical metrics such as approval turnaround times and contract cycle times?Is there a way to identify negotiation bottlenecks?Can you locate all contracts with a specific clause?
Does your contract data flow seamlessly to your CRM and other ERP systems? Is information, instead, kept in silos?Is your contract data secure and end-to-end encrypted?
Take a look at your answers and see if implementing a CLM system would help clear some of these pain points up.
Checklist for a successful contract management software implementation
Let’s say you’ve decided to invest in a CLM system for your company. The following checklist will help you structure your implementation process for your team and realize the maximum value from your CLM adoption.
Action items
Responsible individual
Yes/No
Assemble a CLM implementation team, including stakeholders from various departments.
Explain how the selected CLM solution aligns with your company goals to gain buy-in from all team members.
Communicate the end-user benefits and educate your team on the implementation steps and processes.
Document all expenses, including the cost of the CLM solution, configuration, and implementation charges.
Finalize the profiles and core responsibilities of all users you want in the CLM system.
Organize all existing contract data that needs to be imported into the system. Ensure the input information is accurate and complete.
Enable hands-on training for all users on the system’s workflows and functionalities.
Run a sample test in the CLM system by uploading a few contracts and managing their stages to identify bugs or issues.
Monitor how well users adapt to the system and collect their feedback.
Constantly explore other features and functionalities of the system that add value to plan for a deeper implementation.
Choosing the right contract management software: Cloud vs. on-site
Contract management software can be cloud-based or on-site. Choosing between the two rests on several factors, such as control over the product and data, flexibility of use, product cost, industry type, and scalability.
Cloud-based software In the case of cloud-based contract management software, the product and all the associated data are hosted either in the servers of the software provider or a third-party provider such as AWS. Cloud-based software allows companies to pay based on their need and scale up or down based on usage. It is also cost-effective as there is no capital investment required in the form of servers; companies only need to pay for the resources they use. Cloud-based software is ready to use as everything is configured beforehand, and there's only minimal time spent on implementation and customization.When cloud-based software was introduced, the biggest concern was the protection of and control over data. However, today many cloud software service providers offer a solid infrastructure to protect data and are compliant with government laws on data protection and privacy around the world.
On-site softwareAn on-site or on-premise contract management software requires a company to purchase a license for the software and install the same on its premises for use. The company will host all data related to the product and business on its servers. Legacy contract management software are based on-premise. While this software offers enhanced security since it is under the company's control and behind the company's firewall, the costs associated with managing and maintaining on-premise software are significantly higher than one that is cloud-based.
Here’s what studies around the world show - A case for contract management software
Based on an analysis of over 700 organizations by IACCM, business spending on low-risk contracts has increased 38% in the past six years to an average of $6,900. A mid-complexity contract costs $21,300, while high-complexity contracts can cost hundreds of thousands of dollars. Here are some other interesting statistics that can help make the case for CLM software:
- According to World Commerce and Contracting, poor contracting costs companies nearly 9% of their annual revenue.
- A company loses between 17% and 40% of the value on a single deal due to inefficient contracting, estimates KPMG.
- More than 10% of a company’s contracts are either missing or lost, according to Faulkner Information Services.
- A study by KPMG found that stakeholders do not adhere to nearly 70% of executed and active contracts.
- Fifty-seven percent of business development leaders surveyed in the EY Law and the Harvard Law School Center on the Legal Profession survey say their organizations have seen slower revenue due to contracting inefficiencies; 50% of them have missed out on business for the same reason.
- Seventy percent of the organizations that took part in the EY Law and the Harvard Law School Center on the Legal Profession survey have a formal contracting technology strategy, but almost all (99%) do not have the data and technology to optimize their contracting process.
Where are you on your contract management software buyer’s journey?
While contract management software has been around for quite some time, its adoption is currently on the rise. We understand that identifying and implementing the right CLM solution for your business can be challenging and you may still be on the fence regarding it. You could be in one of the following three stages:
- Stage 1: You are trying to understand the scope of CLM software and how it can benefit your business.
- Stage 2:You are considering a CLM solution, evaluating your existing CLM process, and figuring out the level of implementation your business needs right now.
- Stage 3:You've decided to invest in a CLM solution and are considering multiple options.
Regardless of where you stand in your buying journey, you may find our ebook insightful. Get a deep understanding of the digital CLM ecosystem and the key considerations for navigating the complexities of choosing a CLM solution.
Testimonials for contract management software
Uma Jagadeesan,
Chief Operating Officer, SolveCube
We’ve always been fans of Zoho, and I got really excited seeing the very first demo of Zoho Contracts. It is a powerful tool with advanced features while also being simple and easy to use. It is all thought through well.
Read Case Study
Mohammed Al Khalifa,
Founder and Managing Director, Paraminds
Zoho Contracts empowers us with better control over our contracts with its impressive automated workflows. We've been able to eliminate almost all human errors. Zoho's broad portfolio of products, their seamless integrations, and the team's prompt support have made us stay.
Tina Fidanza,
General Counsel, Loylogic
We were able to quickly set up Zoho Contracts with just a little help from our account manager. The tool is refreshingly straightforward to use, and we've already imported our key contracts. Zoho Contracts helps us stay on top of our contracts throughout their lifecycle.