What is Contract Management?
What is Contract Management?
Contract management or Contract Lifecycle Management is the Management of contracts from vendors, partners, customers, or employees – and at its most basic, contract management software can be defined as an electronic version of a filling cabinet. It supports the entire customer and contract lifecycle which covers any process that contributes, creates or utilizes contract data. Effective Contract Management requires an understanding of every step in the contract process, including any step that contributes, creates, or utilizes contract data
The business world is changing. New ways of driving revenue are forcing companies to reimagine the way they manage the customer lifecycle — making contract management more important than ever before.
What is Contract Management? Take a detailed look at everything involved with the Ultimate Guide to Contract Management
For many companies, “contract management” means, “ stuffing executed contracts into the overflowing filing cabinet, never to be referenced again.” On the other side of the spectrum, when contract management is handled correctly, contract management includes self-service portals, Legal pre-approved templates, Legal playbooks, and electronic signature (e-signature.) In this world, Legal resources are free to manage by exception, and can focus attention on the critical, or non-standard, contracts that typically introduce risk into the organization. Before diving in, be sure to download a complementary copy of the Ultimate Guide to Contract Management for a detailed look at how Contract Management is important to every business.
The Stages of Contract Management (For Non-Users)
After the quoting process, business users express need to Legal for a contract (ex. NDA, service agreement, standard licensing agreement). Contract “repository” – often a filing cabinet, computer desktop or shared server – is often disorganized, with no templates to create consistent contracts so outdated contracts are used as ad-hoc templates leading to potential financial and compliance risks.
Legal needs to get involved to create every single contract, whether it’s standard or specific; this is the stage where the bottleneck typically occurs.
Negotiations begin to occur to determine what terms and conditions are in the final contract.
Sales is pushing for contract terms to be approved, but depending on the size of the contract, it will need to be approved and signed by Legal, executives, stakeholders, all of the internal teams and the customer.
Contracts are set into effect and often stored in filing cabinets where they are difficult to find and amend.
Contracts can’t be searched and reports can’t be run because contracts aren’t easily located in the filing cabinet. If you do find it, all contract analysis is done manually with a potential for human error.
Are both parties holding up their ends of the agreement? It takes you some time and effort to figure this out because members of your staff need to review transactions manually against contracts to look for signs of noncompliance.
Most contracts have end dates when parties need to decide to let the contract lapse, renew, or renegotiate. Often, these end dates will pass unnoticed, meaning countless dollars in revenue passed up.
What Are the Challenges of Contract Management?
1. Manual contract management introduces bottlenecks into the sales cycle.
Legal is often the department responsible for creating, managing and maintaining contracts within the enterprise. Unfortunately, when Legal has to manage contracts manually, the contract management process gets bottlenecked. This leads other departments, particularly Sales, to see Legal as “the department of no.”
2. Manual contract management introduces (manual) errors.
And a lot is riding on the Legal team if they don’t catch mistakes, such as:
- Revenue leakage
- Extended sales cycle times
- Jeopardized customer relationships
How Contract Management Drives the Sales Cycle
Contract management is no longer just about contracts – it’s also relevant to everything and everybody that touches contracts. Companies are now connecting the business cycle – quoting, contracting and revenue – into a seamless process where data and information can automatically and seamlessly feed into each other, so the appropriate parties have the most up-to-date and relevant information they need.
It is critical for your enterprise to establish a connected cycle – beginning with the quoting process all the way to revenue recognition – in order to enhance customer relationships and accurately identify and develop business best practices. When each step feeds directly and automatically into the next, the company can achieve the maximum amount of efficiency, accuracy, revenue velocity, and customer satisfaction.
Contract Management is becoming more and more intertwined with the Sales (quoting) process. For Sales, contract management is used to automate and enable faster, more accurate production and delivery of legal-approved contracts to a company’s prospects or customers. This way, Sales can focus on customer relationship management, communications, and revenue production.
The Aberdeen Group found that sales teams using contract management solutions tended to outperform non-users:
- 39% higher team attainment of sales quota (64% vs. 46%)
- 35% more reps achieving sales quota (62% vs. 46%)
- 24% shorter sales cycle (3.5 months vs. 4.6 months)
- 20% higher lead conversion rate (36% vs. 30%)
- 12% higher proposal volume (18.6 vs. 16.6 per rep, per month)
Cloud-based sales contracts are growing in acceptance. A growing trust in cloud-based applications and software provides the right context for enterprises to easily access and manage their contracts with contract management. Customer relationships are flourishing and companies are getting a better handle on their compliance and risk management as well.
The Stages of Contract Management (For Users)
With an automated contract request process with a guided self-service tool, individual business groups can request contract types as needed. A single online repository collects all contracts, which can be accessed by anyone with the right permissions to review them. Contracts can be searched and analyzed against each other.
Legal can create easy-to-find, easy-to-use templates for every day contracts and common clauses as well as an explicit set of rules which can be used by business users to create contracts.
Sales can create the right contract using a wizard or guide that pulls appropriate terms and conditions, with controls on which langauge or terms can or cannot be changed, and identifying who in legal or business would have to approve alterations.
High-value resources (lawyers) can focus on the exceptions (complex or one-off strategic agreements that require significant negotiations, time, etc.). The legal department can establish exception management, which will notify them anytime a sales rep tries to submit a contract to a customer with outdated legal language or non-standard terms.
Shrink the amount of time lawyers spend preparing and reviewing negotiations with the ‘Track Changes’ feature, identifying who made which modification at what date and time, so you can view, modify and change drafts without fear.
Users can tailor approval workflows (both parallel and serial approvals) to decrease the time of the contract lifecycle.
Terms become a set of instructions for the different parties who need to deliver against them. Revenue recognition begins. Contracts are stored on a centralized online server for easy access and searchability in case of disputes or amendments.
All different departments (sales, legal, finance, fulfillment and operations) need contract information at different times for different reasons, so contracts can be, accessed electronically. Terms and metadata are searched and reported on with ease.
An automated system bridges the gap between the CRM and ERP systems, and makes sure the right requirements are applied for specific situations.
Organize contracts by groups, identify common components and store contracts in a searchable electronic repository so commitments are monitored in real-time.
With organized contracts, building a Contract Template Library and Standard Legal Playbooks are easy next steps.
Each change to a contract is delivered to sales, customer success, fulfillment and operations team to fully integrate the front- and back-end systems.
Alerts help companies renew contracts they want to keep, end contracts that are no longer useful, and start the process of renegotiation early enough before the end date to allow time to reach agreement on new terms for these contracts.
The Benefits of Automating the Contract Management Process
The benefits of automating contract management are real. If your contracts are done faster, you’re going to be able to collect on them sooner. If they’re accurate, you’re going to have far fewer disputes. General Counsels and C-level executives can finally sleep at night because they are confident that the contract management process is working.
Contracts exist at the heart of B2B commerce, as they are the physical representation of the customer relationship. When you manage that relationship properly, you reap a variety of benefits.
Benefits of Automating Contract Management Include:
- Decreased contract cycle times
- Close more deals
- Stop revenue leakage
- Increased visibility
- Increased compliance
- Increased security
- Increase control
- Diminish risk
- Increased user adoption rates
- More face-time with customers
- Reduced admin costs
- Greater contract flexibility
- Improve contract renewal rates by 25%
- Increase revenue by 1 – 2%
4 Steps To Automating Your Contract Management Process
Contracts are essential to your business, and so is an effective contract management system. If you’ve taken on an initiative to streamline and optimize your quote-to-cash process, but you ignore contracts, you are seriously stifling any impending success. You may not reach perfection overnight, but by following the steps of the contract maturity model, you can turn contract management into a strategic process that is intuitive and transparent for your business in a tempered, processed way.
Templates | Clause libraries | Search functionality | Import utilities | Single contract type support
Eliminate information silos and connect your front- and back-end systems to create one central repository for all aspects of your contracts, including templates, clauses and exceptions. With a single source of truth, you and approved business users, partners and customers can view, manage, update and search your contracts for necessary and accurate information.
2. Task automation
Office automation | Authoring tools | Drag and drop clauses | Redlining | Versioning | Approval workflow | Back-office integration
Automate manual processes to free up valuable legal time and energy so your lawyers can focus on critical or special-case contracts relevant to their expertise. Task automation increases process control, reduces the number of errors and speeds up the contract cycle time.
3. Process efficiencies
Multiple contract-type support | Contract assembly | Single sign-on security | Multi-national support | Alerts and notifications | Collaboration | Mobile access | E-signature
Process efficiencies create a well-organized contract process so all stakeholders – Legal, Finance, Sales and departments managing obligations and deliverables – can spend time on critical tasks that correlate with their expertise and job role. Your enterprise will experience faster contract cycle times, reduce admin costs and off-site capabilities with e-signature.
4. Contract performance
Analytics | Reporting | Role-based dashboards | Terms compliance tracking | Milestone analysis | Spend analysis | Profitability | Renewal management | Invoicing
As a company, you’re always encouraged, or even expected, to improve, and contract management should be held to that same standard. Gain visibility into your contracts and contract process to identify and remedy pain points or gaps in order to provide the best service to your customers.
How to Become a Master of Contract Management with Apttus
Apttus Contract Management provides total visibility into agreements, bringing control and governance to your contract management processes. By automating the entire contract lifecycle in Salesforce, the world’s most secure and reliable cloud platform, Apttus helps Legal teams be more responsive, reduce costs and minimize risks.
How Apttus Helps:
- Legal playbooks, clause libraries, and templates ensure terms are accurate
- Redline with or without ‘Tracked Changes’ on to capture each and every change made to a contract
- Automate reviews and approvals to reduce contract cycle times while ensuring the appropriate pricing to handle large, last minute deals easily
- Contract manager receives real-time feedback whenever non-standard language or approvals are created
- A single source of truth – the contract repository – provides all relevant parties with the most up-to-date and necessary information
- With an integrated front- and back-end system and a connected business cycle – from quoting to contracting to revenue management – the errors and associated risk from manual data entry become minimal
- Salesforce security establishes compliance and control with Salesforce’s proven data security credentials and built-in standards
- Maximize the familiarity and capability of Microsoft Word with the collaboration, usability and controls of Salesforce