Contract Workflow

What is a Contract Workflow?

A contract workflow is the end-to-end process of creating, executing, and managing a legal agreement. It’s a structured approach that guides a contract from its initial drafting, review, approval, negotiation, execution, and, finally, to amendment, renewal, or termination.

Depending on your organization’s size and structure, the following parties may be involved in some or all of your contract workflows:

  • Legal teams
  • Sales
  • Deal desk
  • Procurement
  • Channel partner managers
  • Human resources
  • External advisors or consultants

The contract workflow provides a clear and defined process for everyone involved in your contracting processes. That, in turn, minimizes the risk of errors or disputes and ensures every business contract complies with company policies and legal standards.


Importance of Efficient Contract Workflows

Contract workflows streamline the process of contract management from initiation through execution. They ensure efficiency, compliance, and risk mitigation at every stage of the process.

Here’s why they’re crucial for businesses today:

1. Efficiency and Speed

In B2B, time is money. Contract workflows automate and streamline the entire contract management process, which significantly reduces the time it takes to draft, review, negotiate, and execute contracts.

By eliminating manual tasks and leveraging technology like electronic signatures, businesses can close deals faster, thus reducing sales cycle time and enhancing overall productivity.

2. Risk Reduction

Manual contract management processes are fraught with risks:

  • Human errors
  • Compliance issues
  • Missed deadlines
  • Lack of visibility
  • Incomplete or lost contracts
  • Missing contract versions

Enforcing standardized processes and centralizing all contract-related information eliminates these risks. When each contract undergoes the same review and approval processes, adheres to legal and regulatory standards, and is stored securely, the likelihood of disputes and legal challenges is considerably lower​​​​.

3. Improved Compliance

Contract workflows ensure the appropriate team members review every contract for compliance with relevant laws and industry standards. Automated workflows can incorporate contract compliance checks, ensuring all your business documents adhere to the latest legal requirements and company policies​​.

4. Enhanced Visibility and Control

Contract workflows give your business a clear overview of the whole contract lifecycle, from initiation to renewal or termination. That way, you’re always aware of your contractual obligations and deadlines. 

It also allows for real-time monitoring and reporting, giving stakeholders the information they need to make informed decisions and maintain control over the contract management process​​​​. Plus, you can configure it to notify you when contracts are soon to be up for renewal.

5. Cost Savings

By automating clerical work and streamlining your internal contracting processes, standardized workflows ultimately deliver significant cost savings. Reducing the time and resources spent on contract management means you can allocate those resources to more pressing issues.

Plus, minimizing errors and delays prevents costly legal disputes and long-winded negotiations​​​​. Considering poor contract management practices cost businesses an average of 9% of total revenue, implementing workflows to streamline contracting is a no-brainer.

6. Customer and Partner Satisfaction

Fast turnaround times, clear communication, and professional handling of legal agreements show your customers and channel sales partners you’re committed to excellence and reliability.

Short-term, this makes it easier to get deals across the finish line because it’ll be easier for decision-makers to trust your reps. Long-term, it’s the type of reputation you need to build profitable and lasting business relationships.

Contract Workflow Steps

Contract management workflows almost always follow the same general steps. Below, we’ll cover all eight of them and what happens at each stage:

1. Initiation

The process starts when both parties mutually identify the need to form a legal agreement. Several things could initiate the process:

  • A lead in your pipeline accepts the terms in a quote and agrees to move forward with the sale.
  • A buyer accepts your project proposal in response to a request for proposal (RFP).
  • An existing customer submits a request for a change of terms.
  • A third-party vendor wants to resell your products and services as a white label partner.

The employee working the deal will formally request a contract. They’ll submit the request through a contract request form, which captures all the necessary contract info and sends it to the deal desk team.

Most companies limit contract initiation to specific or higher-level employees. At this stage, a contract request triggers a workflow for approval and creation. Based on the contract specifics, the request can be routed via workflow for approval by the corresponding person or department.

2. Contract Creation

Once the appropriate leader within your organization approves the request, your team will begin to draft the legal contract. In many cases, the workflow can pull certain sections from your clause library based on the type of contract you’re generating. It can also generate boilerplate language for standard terms, like an NDA.

Who drafts the contract is specific to your company and its policy. Some organizations require that only legal drafts contracts, while others delegate this task to the requesting employee (usually an AE, channel manager, or customer success rep).

3. Collaboration, Negotiation, and Redlining

Once your team finalizes the first draft, the employee requesting it will send it to the other party. This is where the back-and-forth begins. Each side can request changes or alterations to fit their preferences.

It’s common for reps to reorient contracts around their products or services, so the other party sees it as more valuable. That’s why contract redlining is critical — it allows each side to highlight changes and request revisions in context.

From there, the two sides go back and forth until they agree on the terms of the contract. A workflow can kickstart the process with a real-time collaboration tool like DealRoom, which would notify the appropriate people of updates, approval requirements, and comments. Plus, you can use it to redline contracts in-app with automatic version control.

4. Final Approvals and Contract Reviews

Once everyone involved in contracting agrees on the changes you’ve made, the updated contract will require a final round of approvals. Depending on your company’s policies, multiple stakeholders may need to approve the contract before it goes into effect.

Usually, approval workflows will get this done automatically, according to specific approval criteria. For example, deals over a certain dollar value might automatically be routed to the Chief Financial Officer.

5. Contract Execution

An executed contract is one that is signed and dated by authorized representatives from both parties. From that point forward, it’s legally binding and enforceable.

Signing can take place in person, but it’s normally done via electronic signature. With an e-signature workflow in your digital sales room or contracting software, both parties can sign the contract in-app, making it easier to finalize agreements.

Workflows can also resend notifications to parties who still haven’t signed for a day or two. You can also use contract workflows to track action items and viewership history.

6. Post-Execution Tracking

After executing the agreement, you’ll track milestones as you fulfill its obligations. Your contracting software can track key dates like milestones, delivery dates, and payment schedules. You can also configure notifications when these dates are upcoming, so you never have to worry about accidentally missing something.

7. Auditing and Reporting

Periodically, you’ll need to monitor the contract’s performance to make sure both parties uphold their end of the agreement. Since every legal agreement is stored in a contract repository on the cloud, it’s easy to search for and access relevant records.

The level of auditing depends on your preferences and the type of contract you’re tracking. Auditing can range periodic performance audits to ensure compliance, to spot audits for specific products or services.

8. Amendments, Renewals, and Termination

When an agreement reaches its completion or end date, you can either renew it, amend it, or terminate it. The initial contract might even include terms for contract renewal and amendments to make these processes smoother.

Terminating an agreement is fairly straightforward. Once the contract reaches its end date or if both parties agree to terminate it early, you can use your contracting software to finalize any remaining obligations and officially close out the agreement.

Amendments have a few extra steps for negotiation, modification, and execution. As with the entire contract management process, workflows handle requests and approvals. For instance, if a customer sends in an amendment request that lowers payment amounts, the workflow will route this request to the person who approved the previous version.

Common Contract Workflow Challenges

Contracts are complicated, and they’ll bog down your sales cycle if you don’t have a consistent structure for managing them. Even once you attempt to implement new procedures, you might run into other issues.

Here’s a look at the issues most businesses deal with when it comes to contract workflows:

Lack of Standardized Processes

Without standardized processes, you’ll never be able to scale your operation. When teams (and members within teams) all use different methods to handle business contracts, you’ll run into confusion, delays, and noncompliance instances far more often than you should.

Manual and Paper-Based Systems

If you’re using spreadsheets, Google Docs, email, and a scanner to manage your contracting process, you’re behind. As it is, the overall cost of a typical contract amounts to anywhere between 2% and 11% of that contract’s total revenue. Error-prone and manual processes only add to that cost by creating delays, risking compliance issues, and eating up employees’ time.

Inefficient Collaboration and Communication

This affects both your team members and customers. A workflow might work well for your team, but if it’s tough to use or navigate for customers, you’ll still run into issues. And, if you have to share documents back and forth rather than work in the same one, you’ll face similar copy-and-paste errors, version control problems, and communication gaps as you would with a manual process.

Compliance Issues

Of all the issues with contract workflows, noncompliance situations might just be the scariest. Noncompliance runs the risk of voiding your contract, plus it can cause legal disputes and fines. Workflows can help, but they can also create problems if they’re too rigid, don’t accommodate amendments easily, or if team members neglect them.

Best Practices for Optimizing Contract Workflows

To avoid the abovementioned challenges (and other issues), you’ll need to implement some best practices when you structure your contracting process.

Use templates to standardize contracting processes.

Templates provide a structured format you can customize for specific types of contracts. And you can add your own branding, which makes you seem more professional when you present your agreement. Most importantly, by starting with a pre-approved template, you dramatically reduce the chances of errors and inconsistencies in contract language and structure.

Use a searchable contract repository.

Contract professionals spend up to two hours looking for specific language in a contract. And 90% of contract professionals feel finding a specific business document is a challenge. Using a cloud-based solution to store all your business documents presents a few glaring benefits here:

  • Optical character recognition (OCR) lets you scan physical documents and store them in your database.
  • Natural language processing (NLP) enables you to search for and find specific keywords, phrases, clauses, and language within contracts.
  • You can store templates, clauses, versions, and related documents in the same repository as your contracts.
  • When you have all your documents in a central location, it’s easy to access them from anywhere (like when you’re negotiating with customers).
  • You can configure access based on user roles, who’s involved in a deal, and custom permissions, so the only people who can view, share, or edit a document are authorized to do so.

Automate repetitive tasks.

Within your contracting software, you can configure workflows that automatically route requests to the appropriate person, send out notifications for upcoming milestone dates and payment schedules, and even populate fields within templates with customer data.

For example, if you have a contract template for subscription services, you can set it up so that once the customer fills in their information on one page of the template, all other related fields automatically populate with that data.

And, rather than rely on a rep to remember to send out renewal notices, follow-up emails, or approvals to a higher-level decision-maker, you can set up triggers that handle these things for you.

Invest in regular training and education

Ultimately, it’s people who manage contracts. If you want to implement a new contract workflow successfully, you need to train your employees on what those processes are, why they’re critical, and how to use them.

This is especially important if you have a small team with high turnover or if there’s no clear chain of command when it comes to managing contracts. You’ll want to ensure that everyone knows their role in the contracting process so that nothing slips through the cracks.

Advantages of Contract Workflow Automation

In general, investing in process automation nets you a positive ROI in the form of time saved and fewer errors made. For contract workflows specifically, there are a few benefits that stand out:

  • Accelerated contract creation with smart contract templates for rapid drafting
  • Instant approvals, compared to the days it might take for a paper-based contract to move between people with signing authority
  • Reduced risk with automated compliance checks, reminders, and notifications for upcoming milestones, contract renewals, and major changes
  • Greater negotiation transparency, thanks to integrated redlining and collaboration tools
  • Immediate access to contract analytics and detailed reporting
  • Integrated e-signature capabilities, so legal documents can be signed digitally

How Contract Management Software Streamlines Contract Workflows

Contract lifecycle management (CLM) software strealines every step of the contract management process and all the workflows within it. It handles everything from drafting with pre-approved templates to electronic signatures and obligation tracking. And you can use it to create customized approval workflows and templates to fit your business needs.

Here’s how CLM software streamlines contract workflows:

  • Automated alerts an notifications for key dates, milestones and payment schedules
  • Automatic document generation with contract AI
  • Centralized contract repository for easy access and document management
  • Standardization of processes with pre-approved templates
  • Electronic signatures to speed up the signing process
  • Customizable approval workflows for faster decision-making
  • Real-time tracking of contracts, tasks, and obligations

All these features directly translate to enhanced efficiency, significantly fewer errors, and improved compliance. In fact, digitizing contract management improves contract compliance by 55%.

Plus, a software application delivers better oversight and control over the contract lifecycle, so you’ll have an easier time maintaining good standing and relationships with your customers and partners​​​​​​.

People Also Ask

What is CLM automation?

CLM automation refers to the use of technology and software applications to streamline and improve contract management processes. This includes automating tasks like document generation, approvals, reminders, milestones, and tracking obligations.

What is the workflow of a contract review?

The contract review workflow is as follows: receive and log the contract, understand the scope, assign activities to the corresponding team, examine the terms, negotiate changes, receive approvals, sign, and, finally, archive for future reference.