Every business and corporation operates with contracts and other legal paperwork. Effective management of such business contracts is crucial to the success and growth of the company or organization.

Hence, it is pertinent that we discuss the topic of contract management and all there is to it. Read on to know more about contracts, their management, how it works, and how important it is that contracts in a business are well managed.

What is Contract Management all about?

Contract management in definition can be said to be the process of managing the commercial contracts of a business, firm, or organization with vendors, customers, suppliers, employees, partners, et cetera from the creation of the contract through its execution and analysis and eventually its termination.

In simpler terms, when you speak contract management, you refer to how contracts are made, carried out, and assessed at the end of the day for the economic growth of the business.

Examples of contracts that are typically managed in a business include but are not limited to;

• Employment contracts
• Sales agreements
• Purchasing contracts
• Sourcing and Outsourcing contracts
• Leasing agreements
• Software licenses
• Stock option agreements
• Consulting contracts
• Distribution contracts
• Underwriting contracts
• Registration rights contracts

Why is contract management so important?

Contracts are one of the primary bases on which business run. The success of a business or organization is therefore tantamount to the success of the execution of its contracts.

Effective contract management is essential for businesses to help minimize risks, save money, time, and other resources and significantly improve sales and profits.

For a contract to achieve its purpose, it has to be managed appropriately from the stage of its inception through every other step in between till it has to be renewed or terminated if deemed so.

Poor contract management is responsible for a significant percentage of value leakage from company revenue in businesses.

Stages of Contract Management

Request of initiation

This is the first stage of the contract lifecycle where the need for the contract is recognized. 

Maybe you want to employ a new worker or begin a new line of sales with a different supplier, there will be a need to initiate a contract.

Authoring the contract

At this stage, the contract is drafted and written out or documented. 

For future reference’s sake, this is an important stage, but it may be a demanding task. Using contract management software will make it easier and faster.

Negotiations

The drafted contract is reviewed by both parties to check for discrepancies, and negotiations are made to ensure both sides are satisfied with the terms.

Approval of the contract

This is the stage where the contract becomes ready for implementation.

Approval is usually the stage with the most protracted timeframe and may incur many bottlenecks in the processes.

Executing the contract

Both parties now carry out the signed contract, and effectiveness is essential at this point to make the contract an overall success.

Monitoring and auditing

At this stage, the contract should already be in full operation, and regular checks should be made to ensure that the concerned parties are meeting the terms of the agreement.

Reports

The next stage involves reporting monitoring observations to concerned stakeholders in the business about how the contract seems to be progressing.

Revision of the contract

Over time, the contract, which has long been in operation, is revised and gone over to see how productive and cooperative it has been to the business. This will determine the next series of actions concerning the contract.

Renewal or termination of the contract

The contract’s lifecycle ends with the stage where the decision to either renew or terminate the agreement is made. This decision will significantly depend on the outcomes of the auditing, reporting, and revision stages.

Contract Management Software

Contract management software, otherwise called digital contract management, is a modern system of contract management that involves using electronic and digital software to organize the processes involved in managing contracts.

Many businesses now operate with contract management software – and for a good reason. You don’t have to have large cabinets of files of every contract your company runs; there is no need for the hassle. 

With contract management software, monitoring your contracts and managing other stages and processes is easier, faster, and even cheaper!

Conclusion

Successful contract management should be every business or organization’s target to achieve growth and sales potential. With the right strategies put in place and implemented in contracts, suppliers will remain receptive to the company’s demands, contract disputes are curbed, and every party involved is satisfied in the long run.

*This is a collaborative post