Managing contracts is an inevitable part of running a business. Many business experts believe that the success or failure of a business is dependent on how its resources are managed. This is why it has become a requirement to integrate a CLM system (contract lifecycle management system ) into your business operations.
Contracts are legally-binding documents that protect companies from lawsuits. With all terms and agreements stipulated and signed upon, it sets clear expectations as to how each party is expected to act in relation to the other.
Studies have found that companies that do not have a proper system for Contract Management are susceptible to losing over 9% of their annual revenue. This does not take into account the potential losses of a company due to a lawsuit.
Having established the importance of contract management, here are the steps involved in Contract Lifecycle Management. Each of these steps is important in ensuring that your company’s contract management runs smoothly.
Authoring Contract Templates is an efficient way of sidestepping the laborious task of repeatedly drafting a contract for every time you come into an agreement with a new client or vendor.
A Contract template is a clean version of one of your business’s standard contracts and contains clauses as previously approved by your legal representatives. Obviously, some details vary in each contract dependent on the parties involved but standard clauses will be common across most agreements. By creating a Template library, your company would considerably decrease the time needed to author one contract. A Contract Management System allows a company to create and store templates for their business and to generate fresh contracts with the addition of a few simple details.
Once you have established a formidable template library, it is now time to prepare the contracts. Before you pull up any smart template from your library and start the negotiation process, it is essential that you prepare a list of non-negotiables.
Signing a contract is like entering a relationship. This is why it is important that you know what you want from your agreement and which ones you are willing to compromise for. It is crucial that you identify which terms should be in a contract. Align the terms towards the company’s Goals, Vision and Mission.
Drafting a contract is best done when an In-House attorney is present for supervision. This would guarantee that there are no ambiguities that may be exploited inside your contract.
If you are using Contract Templates, the drafting of a contract is easier. Simply fill in the blanks and you are left with a fully-drafted contract ready to go through the approval and negotiation process.
It goes without saying that a full and thorough review of the contract should be done; if time allows, multiple times. A small typographical error could be hugely significant down the line. There are two common occurrences that may happen. Either, you retract your contract from your client or vendor which is an unprofessional act and then reprint a new contract, a total waste of both time and money. Worse, still, you can be left with a signed contract that is ambiguous and has a different meaning than what was intended.
Now, this is where the hard part comes in. Contracts rarely proceed without a process of negotiation so it’s always best to be prepared for it.
The negotiation process requires back-and-forth communication as all parties attempt to reach an impasse where everyone’s demands are somewhat satisfied. With manual contracts, the process is somewhat tedious and repetitive.
Understandably so, this process can get confusing especially with multiple departments involved in the negotiation process. Maintaining tight control over the various versions and who’s reviewed them is vital..
With Contract Management software, this is mitigated as all users will be working on one centralised copy of the contract with a clear audit trail, ensuring that all involved parties are working on the latest version of the contract. All edits will also be monitored and tagged to know who edited who.
Once all parties have reached an agreement regarding the terms, then comes the approval. For multi-structured companies, approval likely has to go through various departments to ensure that everyone is happy with such a contract.
Manual contracts take days, if not weeks, to get approved simply because physical copies have to be delivered to each department. With a Contract management system, this becomes faster. Each department is notified electronically, at which point, they are already given a platform to view, edit and most importantly, comment on the document should they have any clarifications. This is all done simultaneously and in real-time which drastically reduces the approval time.
Once all is said and done, the only thing left to do before the execution is the signing. Contract Lifecycle Management Software allows users to finish the signing process in less than five minutes. A record of all the contract’s previous versions and the names of all those who edited it for the sake of accountability.
The software also removes the need for a physical meeting just for one measly signature which makes it more convenient to get international clients.
The execution of the contract should be on the list of high-priority tasks in your company. By underperforming, the company earns a bad reputation that may dissuade other clients and investors into doing business with the company.
Aside from this, it should be stressed that a contract is a legally binding document which means that non-compliance renders the company vulnerable to lawsuits. Once a contract is signed, it is always best for both parties to follow all the stipulated terms and agreements.