How to optimise your company’s contract management

Effective contract management is key for business progress in today's competitive business environment. It has become an essential pillar of organisational success because contracts are the cement on which companies are built; they are the key to contracting, business relationships, procurement and a whole host of other operations. However, managing these vital documents can be a complex and demanding task. Whether you're a legal director, in-house counsel or any professional in charge of drafting and managing contracts in a corporation, read on to learn how to boost your work with the best contract management strategy.

We'll explore what contract management is, its importance to your business, the key stages of the process and the risks of ineffective contract management, then dive into practical tips on how to optimise your contract management. If you are looking to transform the way your company manages its contracts and improve operational efficiency, read on to discover how you can take your company's contract management to the next level.

In this article you will find:

1. What is contract management?
2. Why are contracts so important in companies?
3. Phases of contract management
4. What are the risks of inefficient contract management?
5. 5 tips to improve your contract management

What is contract management?

Contract Management definition

Contract management is the process of handling a company's contracts efficiently and systematically from conception through creation to conclusion. This complex process includes the negotiation of terms and conditions, as well as ensuring compliance with agreed aspects, documentation and coordination.

Contract management is essential to maintain control over a company's obligations and rights, enabling better risk management and compliance. A robust contract management system not only helps to create and maintain contracts and facilitate work on them but also ensures that the terms are adhered to, avoiding disputes and penalties.

Why are contracts so important in companies?

Contracts: the heart of every business transaction

Contracts are vital because they form the basis of every business transaction and relationship in companies. These pieces of paper, whether physical or electronic, are the backbone that defines expectations, responsibilities and the provision of services and products, protecting the legal and financial interests of the company.

A well-managed contract ensures that both parties fulfil their obligations, avoiding disputes and strengthening business relationships. In addition, well-drafted and managed contracts can provide clarity and certainty, enabling companies to operate more efficiently and securely.

Phases of contract management

Key stages of contract management

Application, initiation and drafting

• Request: request from a client, internal or external, for a contract for a purpose.
• Initiation: identification of needs and establishment of key terms.
• Drafting: creation of a document that accurately reflects the negotiated terms.

Negotiation and approval

• Negotiation: adjustment of terms to ensure mutual agreement.
• Approval: internal review to ensure compliance with company policies.

Execution and monitoring

• Execution: formalisation of the agreement through authorised signatures.
• Monitoring: monitoring of contractual compliance and performance.

Review and renewal / termination

• Review: assessment of conditions upon expiry of the contract.
• Renewal or finalisation: extension or conclusion of the document.

Each of these phases is crucial to ensure that contracts are managed effectively, reducing risk and improving operational efficiency. Technology can play a key role in automating and improving these phases, facilitating more accurate and faster management.

You may be interested in: How to avoid loss of contract benefits through CLM

What are the risks of inefficient contract management?

The consequences of poor contract management

Inadequate contract management can lead to what is known as revenue leakage, a loss of revenue that occurs due to failures in contract enforcement and administration. This is often caused by poorly negotiated contract terms, a lack of follow-up on deliveries or manual errors in documents that result in severe legal risks. Studies estimate that 5-40% of the value of contracts is lost due to inefficient operations, which can result in a loss of up to 9% of a company's annual revenue.

A study by World Commerce & Contracting found that companies can lose up to 9% of their annual revenue due to poor contract management. 

5 tips to improve your contract management

Improve your contract management strategy

• Implement the right legal tech: use specialised contract management software to automate and standardise processes. Tools such as CLM (Contract Lifecycle Management) can greatly reduce errors and boost efficiency and security in contract processes.
• Keep your team up to date and familiar with legal operations: make sure that everyone involved understands the contract management processes and tools in the company. Ongoing training ensures that the team is up to date and familiar with the latest legal operations trends.
• Evaluate your contract management: check the compliance and effectiveness of contracts in your various processes to proactively identify and correct problems. Regular audits also help maintain the integrity and value of contracts.
• Improve communication between the departments involved: facilitate effective communication channels between departments to improve collaboration on contracts. Transparency and clear communication can avoid misunderstandings and ensure that everyone is aligned. This point is closely linked to the first. The CLM ensures such centralisation in contract communication.
• It applies maximum effort to strengthen contract security: it protects contractual information against unauthorised access and data loss. It implements robust security measures to ensure that sensitive data is always protected. A CLM with restricted permissions and access helps to eradicate improper access, leaks and loss of key documentation.

Efficient contract management is indispensable to maximise profitability and minimise risk in any organisation. Implementing robust contract management practices not only protects company assets but also facilitates smooth and efficient business operations.

And that's it for today's article! If you want to know more you can follow us on LinkedIn to keep up to date with the latest in innovation for the legal tech sector. If you would also like to learn how to adopt a comprehensive contract management strategy and start your company's contract management transformation now, request a demo with one of our legal operations experts and get advice from a winning team.