Everything You Need to Know About Contract Management

If you’re like most people, you probably stop thinking about contracts the moment the ink is dry, but at every organization there is someone tasked with the job of contract management.

If you’re reading this post, we assume that person isn’t you, but maybe you are the person who gets involved at some point of the contract life cycle. Or maybe your contract manager asked you to help build a business case around why your organization needs to invest in a better contract management solution. Or maybe you’re simply looking for a one-stop shop for all things contract management.

Great news! You’ve found the right resource for all of the above.

This post is your primer on the basics of contract management, including defining exactly what contract management is and the role it should play within an organization. We’ll also cover the types of contracts used in business, contract life cycle stages, and the contract management process as a whole.

Let’s dig in and get clarity into what happens to contracts before and after they’re signed and why it matters for your business’ bottom line.

Contract Management Definition

What is contract management, exactly? Contract management involves putting systems in place around the lifecycle of a contract. Doing this helps streamline the contract process, reduce inefficiencies, minimize risks, and helps businesses find and use helpful data.

About those risks… The “seat belt” analogy is often applied to contract management. If you haven’t heard it before, it goes something like this:

Contract management prevents catastrophic loss like a seat belt prevents the loss of life. Most drivers (like contracts) are perfectly fine and won’t suffer any harm. But seat belts (like contract management) prevent those 1 in 100 instances where something really bad could happen.

As such, contract management is more than just a seat belt. We’ll elaborate on its many benefits next.

Role of Contract Management: Why It’s Important

So… if the purpose of contract management is to add structure and systems to the contract life cycle, understanding the life cycle is the first step in understanding how contract management works.

At each stage of the contract life cycle, contract management works to:

• Support Basic Business Functions
  

  Contracts are the backbone of many businesses. Not having a good system in place to organize and manage those contracts can create constant headaches for your team and your customers.
  
  Contract management organizes the contracts themselves as well as the overall contract process, which makes day-to-day operations at your company easier. It makes it easier to find and review a contract — even if it was signed months ago — and once a contract is signed, everyone on your team is clear on knowing the next steps they need to take in the contract life cycle.
  
  

• Improve Efficiency

  Contract management improves efficiency because with a systematized process, there’s less time wasted wondering what comes next, who needs to review a contract before signing, or where the most recent version of a contract is located.
  
  Contract management software further reduces inefficiencies by automating many steps in contract management, from contract creation to closing. This automation has the added benefit of helping to reduce human error. As we all know from the 1986 hit from The Human League, humans are born to make mistakes, but — when used properly — contract management software is infallible. (We’re paraphrasing here, but we think that’s how the song went.)
  
  

• Reduce Costs and Increase Revenue
  

  Managing contracts using a streamlined, automated process also makes it easier for you to monitor exactly where your money is going. Undocumented expenditures can add up fast for businesses of all sizes, but contract management increases transparency and allows you to identify opportunities for saving money. Plus, it helps you avoid expensive legal headaches and other costly mistakes like these.
  
  A major bonus is that, by staying on top of important contract deadlines, contract management helps you increase revenue by providing your sales team with opportunities to renegotiate contracts with customers before those contracts terminate or auto-renew.
  
  

• Maintain Compliance

  A contract management system can play a role in ensuring that terms, conditions, and procedures are followed after a contract is signed. Maintaining compliance reduces your legal liabilities and also helps you deliver the best possible service to your customers.
  
  On the flip side, this insight also allows you to monitor which of your vendors are delivering on their agreements with your business.

Difference Between Contract Management and Contract Administration

One quick point before we finish discussing the basics of contract management — you may see the term “contract administration” used when talking about contract life cycle stages.

Contract administration and contract management aren’t quite interchangeable, although there is some overlap (kind of like how all squares are rectangles, but not all rectangles are squares). The difference between contract management and contract administration is that contract management covers the entire contract life cycle, while contract administration is all about the work done before a contract is signed.

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Types of Contracts in Business

There are many types of business contracts. As a general rule, contracts can be broken into three main categories:

• 1. Sales contracts

  These include bills of sale, purchase orders, warranties, and security agreements.
  
  

• 2. General business contracts

  As the name suggests, this type of contract covers a wide range of issues, from partnerships to stock purchases and promissory notes. These contracts relate to the structure of a business and stakeholder protections.
  
  

• 3. Employment contracts

  These contracts aren’t just for employees, but also for contractors and consultants. They include nondisclosure agreements, noncompetes, and power of attorney provisions.

Whatever types of contracts your business deals with, you can feel confident knowing that ContractSafe has your back. Our software was designed with versatility in mind, giving you the tools you need to manage any type of contract.

Contract Life Cycle Stages

Sign a contract. Stick it in a folder on your computer. Forget about it.

This is the contract lifecycle for most people. After signing a contract with an attorney, for example, do you feel the need to ever look at it again? Unless something comes up during your engagement with them, then probably not!

On the other hand, if you are an attorney, you spend a lot of time on the different stages in the contract lifecycle. While these can vary from one industry to the next, here’s a broad overview:

Stages 1 and 2: Preparation to Negotiate and Draft

The seed of a contract is planted when one party proposes a business relationship to another. Then, both parties determine their goals and strategies for this relationship. This stage of the process includes an intake request, clause selection, and a first draft of the contract. It’s always best to be the party that drafts the contract, which gives you more control of the language and terms used in an agreement.

Stage 3: Contract Negotiation and Creation

The next step in the process is negotiation, which involves a back-and-forth conversation between parties. The overall goal here is to come to terms that are mutually beneficial. The negotiation stage usually includes redlining, internal approvals and routing, tracking status, and measuring turnarounds.

Stage 4: Contract Execution

You’ve come to an agreement! Now it’s time to put pen to paper and sign your contract. Back in the day, this meant an in-person meeting and using literal pens and paper, but these days, it’s more likely to mean clicking a link from your email and signing electronically. Because we think of everything at ContractSafe, we’ve got electronic signature functionality available as part of our productivity package. We also have two-way DocuSign integration built-in to our contract management software, making the collection of signatures and tracking contract status a breeze.

Stage 5: Tracking and Performance Management

Now we arrive at Stage 5, which is not “filing away the contract and never thinking about it again,” but tracking and monitoring. This is the most crucial point of the contract life cycle, but it’s also the most invisible. Other than the person in an organization who manages contracts, no one really pays attention to a contract after it’s negotiated and signed. Tracking and performance management includes searching, tracking, reporting, alerts, and assigning permissions.

Stage 6: Closing, Renewal, and Reporting

Contracts that have ending dates must be renewed; open-ended contracts may need to be closed. Data needs to be gathered and reports need to be generated. This stage of the contract life cycle is ongoing and without automation, it can be a slog. ContractSafe can come to the rescue here, too, with simple reporting features and user-friendly search options.

Learn about common contract management terms in our glossary.

Components of Contract Management
Software: 6 Must-Haves

As you can see, there’s a lot involved in contract management. With so many moving parts, it’s hard to pull it all off without contract management software. Although many contract managers can create impressive color-coded Excel spreadsheets, these aren’t ideal because, let’s be real: these spreadsheets usually only make sense to the person who created them.

A solid contract management solution is user-friendly for everyone involved in the contract life cycle. Here are some noteworthy components to look for when evaluating contract management software:

• Repository: It creates a cloud-based storage repository for all of your contracts. Which means even when you’re working from home or on-the-road, you can access exactly what you need — and so can everyone else who is involved in the contract management process.
  
  
• Security: Any software must be secure, but ContractSafe has best-in-class security with features like encryption, malware and virus detection, and vulnerability testing. It’s basically the Fort Knox of cloud-based contract management software.
  
  
• Search: The use of optical character recognition (OCR) technology to digitize contracts into text that a machine can read is vital. This allows for Google-like searching across contracts, or even within a single scanned contract, so you can find all mentions in a matter of seconds.
  
  
• Automations: It makes your (work) life easier. It’s really as simple as that! ContractSafe’s date-tracking alerts, scheduled reports, and [AI]ssistant tool can make work easier for nearly everyone involved in the contract life cycle. You might even start looking forward to Monday mornings — but we’re not making any promises.
  
  
• Integrations: Do you use DocuSign? Salesforce? Great, so do we! ContractSafe has DocuSign integration and it can sync with Salesforce so there’s no need to manually import documents or other information from one platform to another.
  
  
• Technical Support: Support is key when adopting any new software. ContractSafe offers unlimited customer support to help your team with the initial platform integration. We’ll also provide customized training sessions and be available for future troubleshooting.

If you’re ready to say good-bye to color-coded spreadsheets and messy shared folders on Drive and Dropbox — then come say hello to one of the best contract management solutions out there (hey, it’s not just us saying it!) and request a demo. We look forward to rocking your world.