Fundamentals of Contract Management Software and How They Benefit Industries
Contracts are the lifeblood of business. They establish rules and boundaries between companies, partners, and even between employers and employees. They protect from liabilities and give recourse to parties with grievances. And that is only the beginning.
With all those functions, it is increasingly important for successful businesses to incorporate contract management software to optimize their operations. It can be very easy to fall out of compliance with a contract, miss a key date, or even miss a date for automatic renewal or cancellation—which can be very costly. As careful as your team may be, human error in contract management will probably hurt your bottom line at some point. It may have already happened to you.
With the right tools, however, those errors can be a thing of the past. Contract management software has become an increasingly important part of a successful business plan. The benefits are numerous and can apply to just about every industry under the sun.
Before we look at different examples of how contract management software can benefit various industries, we should look at just what contract management software does.
Fundamentals of Contract Management
To understand a contract management definition, we must understand the lifecycle of a contract. By understanding the process of creating and executing a contract, we can then see how contract management works and how contract management software can make the entire process work better.
What are the stages of a contract? The Contract Lifecycle explained
The lifecycle of every contract is made up of the same components: Initiation, authoring, negotiation and approval, execution, management and compliance, and renewal/expiration. Each phase of the cycle brings unique challenges.
As an example, let’s say that your company has found a new vendor with whom you wish to do business. Your vendor contract management will follow a path similar to this:
Initiation occurs when the vendor agrees to do business with you. The initial language of the contract will be put forward. This may use a template with standard language that has been used with other vendors. Both parties will negotiate the specifics of the contract, including remuneration and specifying deliverables before the relevant figures grant approval to the terms of the deal. The contract is then signed and goes into effect on a specified date. The contract compliance process then begins as contract managers ensure that each party is living up to their ends of the contract and remaining in compliance with the terms of the contract. Assuming the management and compliance phases proceed without issue, the parties can agree to either renew their contract under new terms or under new terms with updated values for payment and deliverables or allow their partnership to expire.
Those, in short, are the stages of a contract. With that understanding in place, we can now ask what is contract management and how does contract management software improve the contract management process?
The Basics of Contract Management Software
Most contract management takes place after the execution of the contract. Contracts must be stored, they must be tracked, they must be available for reference to ensure compliance, and they must be reportable if compliance is in question.
Quality contract management software accomplishes all of these tasks and more. Digital storage allows for a high volume of contracts to be stored securely. Cloud functionality ensures users with permissions can search and review contracts on-premises or remotely to track important dates and milestones in real-time as well as set alerts for important dates. And that same tracking functionality can serve to report compliance issues or compile audit reports for oversight organizations or legal disputes.
However, those are not the only functions of contract management software. By utilizing document management functionality such as that found in M-Files, contract software also helps in the negotiation and approval stages of the contract lifecycle as well.
One of the biggest issues with analog contract management is that the people hammering out the details of a contract before its execution can easily find themselves making changes to different versions of a contract. The inefficiency of this style of editing contracts can lead to hours of negotiation teams rifling through language to reconcile different versions of what should be the same contract.
Managing changes begs the question: contract change management is composed of which three main components? Those components are submitting a change, getting that change approved, and retiring the now obsolete version of the contract.
What is a contract management system?
Contract management software allows for permissioned team members from any side of a negotiation to submit changes, receive approval on those changes, and update the contract accordingly with ease. Each change can be tracked to the person who made it and to the person who approved it and all parties involved in the negotiation maintain version control.
Because contract management software is accessible to team members with permission from both sides of the contract, this system for adjusting contracts during negotiation creates a more standardized workflow for all parties while digital version control drastically reduces the workload of team members that need to ensure that everyone is up-to-date on the status of their contracts.
The Role of Contract Managers
Whenever a SaaS product brings automation and standardization to an area of business, there is concern that it will push humans out of their jobs. But even with end-to-end contract management software optimizing all stages of a contract’s lifecycle, contract managers will still be needed. But what is a contract manager?
While effective contract management software offers a vast suite of functionality to streamline and improve the processes of creating and managing contracts, people are still needed to negotiate changes, execute contracts, and interpret the information provided by their software about elements such as deliverables and compliance.
Contract managers handle those tasks. It is key, though, to recognize the difference between contract management and project management. Project and contract management have important differences.
Project managers oversee teams that work to complete new initiatives from start to finish. Contract managers track the obligations in a contract such as key dates and deliverables to ensure that a company and its contractual partners remain compliant with each other.
Benefits of Contract Management Software
In addition to creating standardized workflows to manage changes to contracts and improving storage, security, accessibility, tracking, and reporting functionalities, contract management software also offers flexibility of implementation.
In a world where eCommerce is increasingly the norm, very few businesses can afford to operate without any digital contracts. Everyone has a system. That’s why the importance of choosing the right software partnership cannot be stressed enough.
Your contract management software should be adaptable to your needs and integrate with your existing contract management framework. For example, do you work with a third party to secure digital signatures? Make sure your software can work with that third party.
Recognizing the strengths and weaknesses of your existing system will allow you to maximize the efficacy of your new system. The right software will bring consistency and efficiency to every stage of your contracts’ lifecycles.
While contracts are important to every industry, each industry has unique needs when it comes to contract management. Listing every single industry’s contract needs would be a herculean task at best, so here are a few examples of how contract management software works in different industries.
So many decisions in healthcare can become life-or-death — even decisions about which vendors a facility chooses as their partners. Between government regulations and navigating payments and interactions with insurance companies on top of normal business costs like vendor and leasing agreements, healthcare contract management can be one Gordian Knot of paperwork after another.
Contract management software helps smooth out those knots by creating a searchable, trackable database of contracts so that you can find the relevant documents whenever you need them. Whether making sure an insurance company follows the terms they agreed to or providing evidence of compliance with regulations such as anti-kickback laws, contract management software allows healthcare facilities to keep their focus on their patients instead of on their papers.
Laypeople often assume that the products they enjoy begin at factories. And while that is true in a way, manufacturing businesses must always be on the lookout for component suppliers that offer competitive prices. This makes procurement and contract management as well as the relationship between a vendor and contract management very important.
Additionally, tracking promised deliverables and monitoring compliance are key to maintaining profits in the manufacturing sector.
Tech companies handle large amounts of data for their clients including personally identifying information and sensitive company information such as patents. Managing employee agreements to ensure that security agreements are enforceable even if an employee leaves the company is an important function of contract management for technology companies, as is tracking deliverables and managing relationships with clients and vendors.
Biotech is a high-risk industry. It is at the cutting edge of healthcare and technology and biotech research and development requires managing contracts with test subjects in studies of various sizes. These studies are necessarily highly regulated and may require frequent reporting for audits. Contract management software can make that reporting simple while tracking subjects and ensuring proper confidentiality clauses are in effect.
Whether in print, radio, television, film, or online, media enterprises require large teams to make their messages heard. Managing business relationships with talent, writers, and/or a variety of workers from multiple guilds and unions can quickly get complicated and overwhelming without the help of contract management software.
And Many More
As previously stated, each industry has unique contractual needs. Though some aspects are nearly universal, contract management software must be versatile and customizable to effectively provide SaaS benefits.
So while it is tempting to write that there is only one management contract definition or contract development definition, the truth is that each industry and even each company brings its own nuance and needs to contract management.
Fortunately, technology has advanced to the point that contract management software can offer that level of nuance and customizability. And the technology is getting better every day.
Into the Future of Contract Management
Contract management software has come a long way in a relatively short time. It wasn’t so long ago that scanning .pdf versions of contracts for storage on computers was practically cutting edge. But now having a standardized and automated system to process contract management notes that are available to anyone with the proper permissions at the push of a button is essentially baseline functionality.
Beyond that, as blockchain technologies and artificial intelligence applications continue to develop, more aspects of contracts will be automated — making the lifecycle of a contract more efficient and increasing transparency for all parties involved.
The standardization of workflows and automation of contract management processes streamlines contract management and improves the productivity and efficiency of any business that embraces contract management software.
Resisting the opportunity to improve processes in a business is wasteful. There is always room to get better — more efficient, more productive, and more profitable! Whether you need to augment your current system or completely revamp your contract management software, it behooves you to see how you could improve your contract management.
No matter your industry, you need contract management. Contract management in finance, logistics, consumer goods, and all the industries that were mentioned previously have contract management needs both universal and unique. Now that you understand the basics of contract management software, it is time to take the next step to see how it can specifically benefit your business.