Why Contract Management Is So Important

The contracts and agreements between businesses and their extended enterprise often provides the platform for the structure of an entire business and can be key to driving businesses forward, or alternatively, causing a negative outcome, such as losing revenue.

From employment and policies to sales and logistics, from clients and customers to vendors and stakeholders, contracts are a key element of business strategy, no matter the industry. Due to their importance and the heavy reliance of agreements underpinning the global supply chain and commercial economy, contract management should be high on the agenda for businesses of any size, as in the current market, scalability and agility should be critical targets, both of which can be met by having excellent contract management.

Good contract management is reliant on a system of processes and capabilities that match your current business requirements. For businesses and organizations with substantial numbers of contracts such as those in the aviation industry for example, or businesses with complex legal and financial contracts and agreements, the contract management system in place needs to be far more comprehensive than smaller businesses with fewer contracts, to avoid loss of contract performance and value.

The same goes for businesses with higher value contracts, contract management processes need to be prioritized if you are dealing with agreements worth a lot to your business or organization, so having the correct system and processes in place to be able to manage these contracts through their entire lifecycle is of huge importance.

By optimizing the processes involved in contract management and implementing a comprehensive contract management system, either by adding extra tools and processes or replacing unwieldy legacy systems with more modern solutions such as automated contract management software, you gain control over every stage of the contracting process, from risk assessment, through onboarding to contract renewal and termination, which in turns improves contract performance and value, as well as better governance and administration.

Managing risk is vital for successful business and is often directly linked to how much time and resource has been allocated to good contract management. The necessary due diligence and risk assessments at the start of the contracting process is one key area of contract management that should never be overlooked. The vulnerabilities created by a contract with any third party during a commercial relationship are often not simply the risks associated with poor performance of contractual obligations, but also the negative consequences from the third party themselves. So, successful contract management should always incorporate excellent risk management as standard to avoid poorly managed contracts and minimize the risks that can lead to negative consequences for your business, both reputationally and financially.

How well you manage your contracts can also have a direct impact on the integrity of your supply chains and business operations, as well as future opportunities to grow. Without managing and monitoring your contracts throughout their lifecycle correctly, you cannot gain any insight or data from which to accurately assess and project any future planning and revenue.

Given the importance of contracts to businesses, there are distinct advantages to be gained from effective contract management and gaining control of end-to-end processes. Although effective contract management is achievable with manual processes and added tools such as e-signatures for example, this is simply not feasible for many larger businesses and can be inefficient and poor use of resources for small businesses. So, what is the best solution?

Contract management or contract lifecycle management (CLM) software has revolutionized the contract management process. Having a digital solution has helped solved some of the challenges faced by businesses trying to improve efficiency and maximize the potential value of their contracts, as well as addressing many of the pain points that can occur when manually managing the life of a contract.

CLM software is an all-in-one platform designed to streamline every process and phase of a contract into an easy, simple to use system. This end-to-end management can connect every stage together and allows for improved efficiency and productivity.

The tools and features available in an automated digital solution such as contract management software, means it provides an ideal platform for strategic planning, scalability, and growth. But what other advantages can be gained from implementing contract management software? 

• Centralized Repository: Most contract management software is designed and built around a centralized repository feature, creating a single, unified data pool. This granular data and the accessibility a unified source provides, means you can make decisions and strategies based on fact, with the most up-to-date, actionable data. This feature can also help with version control and prevent any loss of data. By using configurable search and reporting tools and data tags to identify contracts for key words and clauses, information can be accessed quickly and easily.   
• Risk Management: Efficient operations reduce the risks associated with contract management, so an advantage to improving efficiency throughout a contract lifecycle using software means there are the available resources to increase the monitoring of expanding third-party relationships and the value they bring to your business. Using the monitoring and auditing tools within contract management software your business can continually and quickly, identify and mitigate risks. Including operational, financial, and reputational risk. This analysis combined with the granular data and auditing tools, means you can be proactive in your approach to risk, successfully reducing risk and assessing your level of risk appetite and the effect it has on your current and future business strategy.
• Improved Efficiency: In any business or organizational structure, improving efficiency is one of top priorities. Efficiency improves productivity and profitability and by automating your contract management processes with online contract management you can streamline the governance and administration through all stages of a contract lifecycle. The tighter control and optimized governance that efficient contract management software can give your business helps you achieve a great productivity from staff, allowing you to utilize the saved time and resources elsewhere.  
• By moving to a digital platform and automating your management procedures, you standardize your processes throughout your entire contract management system, which can improve administrative efficiency and optimize your organizational structure by integrating any siloed departments. 
• This overall efficiency and control can have numerous benefits throughout the organizational model, from contract creation and standardization of contract language, to future-proofing your business and having the necessary framework in place to allow for scalability.    
• Tracking, monitoring and reporting: To make fact-based decisions regarding your contracts and their value, automated contract management software offers reporting tools which allows an analysis of all the workflows and operational data relating to each contract and gives an overview of your business. By tracking valuable information, milestones and events and using trigger notifications for critical deadlines and deliverables, software can offer your business full control over a contract and avoid any costs to your business, especially during the contract renewal phase, as this is a particular provision that can be missed without adequate oversight.  
• Automated workflows: If you implement a digital contract management solution, all the information about your business will remain in one place, so you can maintain and manage complex contracts and control organizational structures without complications by using automated workflows. Any elements or processes can then be visualized through interactive dashboards. This gives your business a controlled transparency and a better ability to manage a larger number of complex contracts at any given time.  

By optimizing your contract management and choosing the correct features and tools to be included with automated software, you can keep on top of any changes or events allowing you to assess and project long-term revenue. Also, configuring your management software to your business needs and size, is a cost-effective method to streamline management and ensure a higher quality of governance throughout your business.