Request: a business user asks for a contract
The first step in the contract process is for someone in the company to request a new contract. In many companies, the request process can be very informal and disorganized. If there are no centrally located or easily accessible templates, it results in outdated contracts used as ad-hoc templates, exposing the company to financial and compliance risk.
A casual contract request process is also slow and inefficient, with the details needed to create the contract usually shared verbally or by email.
The contract request process can be automated with a guided self-service tool. This allows individual business groups to request the contract types they need, and the contract creators—usually in the legal department—can respond according to measurable service level agreements (SLAs) they have with their business teams.
Drafting: a contract is created
When it comes to creating a contract, the goal is to eliminate manual work and reduce the time required, but without introducing unnecessary risk. If legal must be involved with the creation of every single standard contract, your contract management process and sales cycles become riddled with slow and costly bottlenecks. Because lawyers have a specialized skill set and their time is extremely valuable, it’s ideal to use templates for everyday contracts and common clauses wherever possible. That way, high-value legal resources can focus on the exceptions, such as complex or one-off strategic agreements that require significant negotiation. And, the entire process is faster and more efficient for all contracts.
The contract drafting process can be automated with CLM. When your lawyers approve centralized templates in advance, those templates can be reused over and over with almost no intervention from legal. Plus, the legal team lives in Microsoft Word or other word processing software, so finding a tool that seamlessly integrates with Word is critical for the adoption of your CLM solution.
Negotiate: terms are agreed between parties
When thinking about contracting, the negotiation phase typically comes to mind. But negotiation is not only limited to price. Everything about the business exchange is included in the contract: service levels, liabilities, options for renewal or termination, intellectual property, publicity, and dozens of other factors. And nearly all these terms are potentially open to negotiation. Your negotiation should make sure they produce the best outcome for your business while remaining agreeable to the other party.
During the negotiation phase, it’s important to have the most up-to-date terms and then track any changes the counterparty makes. It’s easy enough to track changes using built-in capabilities in Word, but these tools aren’t designed for documents that pass through many hands. Plus, it’s easy for the other side to slip something into a Word document without notice. With contract management software, changes can be tracked in real-time with visibility across teams, maintaining accuracy and consistency throughout negotiations. Since most of a contract manager’s or lawyer’s time is spent working with Microsoft Word or other word processing software, it’s important that your CLM system allows users to perform the negotiation tasks directly inside the tool they’re most familiar with.
Approval: internal controls ensure the best outcome
Part of the challenge of approvals is finding the right balance between too much oversight and not enough. This is where the speed vs. control conundrum is most acutely felt. Your sales teams’ paychecks (and the company’s revenue) ride on getting the contract through. But, depending on the importance of the contract, you may need high-level legal or executive involvement to ensure your interests are protected.
It’s critical that your contract management system can facilitate the approvals and controls needed to protect the company’s interests. At the same time, your solution has to have flexibility to automatically navigate the quickest route to executing the agreement. Approvals must come from all appropriate internal teams. With an advanced contract management system, this can be done electronically and even on mobile devices, dramatically speeding up contract cycles.
Execution: the contract is signed, put into effect, and placed in a repository
Execution is the stage where the contract is signed and goes into effect. An eSignature solution can reduce the time to “yes” from days to minutes, and help track the signing process with audit trails. After signature, the contract terms become a set of instructions for the different parties involved. This is where having a seamless process for getting contract details to fulfillment is critical and revenue management kicks in.
What happens to the contract document itself once the contract is executed? Ideally, it’s stored in a centralized place where it’s easy to access in case of a dispute or a need for modification. Unfortunately, for a lot of businesses, a contract’s final resting place is in a file cabinet somewhere in the legal department or on a hard drive. If you manage your contracts that way, you are missing a lot of the revenue growth opportunity that contract management offers and potentially opening yourself up to risk. After all, you can’t manage what you can’t find.
Obligations: ensure both sides meet their end of the agreement
At the obligations stage, it’s time to get to work. Sales contracts put you on the hook to deliver goods and services, meet deadlines, issue reports, and do many other things. On the flip side, contracts also entitle you to get paid if you live up to your end of the agreement. But sometimes the fulfillment of these contract line items is easier said than done.
There are a few ways companies can approach this problem:
1) shut their eyes and hope for the best
2) hire an admin to manage the chaos in an incredibly detailed spreadsheet; or
3) integrate their contract management system with front- and back-end systems, so changes to the contract are delivered to sales, customer success, fulfillment, and operations teams for action.
With strong obligation management tied into CRM and ERP, you won’t miss a deadline or lose track of a payment.
Compliance: meet all reporting, search, and government requirements
While you’re handling all the obligations created by contracts, there are plenty of other things you need to do with the contract data. This includes providing regular reports to internal and possibly external parties about the contracts and your performance to obligations. You also might need to locate specific contracts to comply with industry requirements, government regulations, audits, and responses to lawsuits.
To meet all these needs, it’s important that your repository has detailed search and reporting capabilities. You want the ability to search for business terms, contract clauses, performance to obligation, and free text. Without a repository, searching for information in your contracts can be costly, time-consuming, and frustrating.
The quicker you can access the information inside your contracts and take necessary action, the more time and money you’ll save, the more you’ll reduce overall risk, and the less you’ll pull the business away from its key activities.
Amendment / renewal: contracts are changed and renewed, then the cycle starts over
Before your contract expires, you’ll want to send a new version to the customer for a renewal. This will kick off a new round of drafting, negotiation, approvals, and so forth. In short, the contract lifecycle starts over. If you’re managing your contracts without software, it’s easy to lose track of renewals. You might rush to get a contract signed before the last agreement expires or even let a contract expire by accident.
Sometimes your contract won’t get to renewal before it needs to be revised—perhaps your company was acquired, or a new law came into effect requiring you to update your existing contracts with new language. In cases like this, you’ll need to amend contracts and notify customers.
Your contract management software should provide alerts, reporting, and search abilities that enable you to stay on top of renewals and handle amendments. Just like in the compliance step, a manual system will make renewals and amendments extremely difficult