What is Contract

Effective contract management helps establish a
path to increase revenue and strengthen reputation.

What is Contract Management?

Contract management describes how companies create and then manage contracts for their prospects, leads, and customers. The term does not refer to any one, specific action. It describes all the processes, across all departments, that occur at any point in the contract lifecycle. It is also commonly referred to as Contract Lifecycle Management (CLM).

Examples of contract lifecycle management processes include generating contract terms, redlining, approval of any modifications to the contract terms, and e-signature capabilities.

Because contract management is inseparable from the customer lifecycle, it’s an essential part of how to create a sales strategy that maximizes revenue.

Contract Management Stages

Contract management covers all aspects of the contract management lifecycle. Organizations use the strategies, techniques, and principles to streamline every stage. A holistic approach is important. A slowdown in any stage can result in slow response times, time wasted doing (or redoing) administrative tasks, and/or friction with prospects that can harm customer journeys. 

Although they make up a whole experience, every stage presents unique challenges and has unique needs. This is why it’s so important to identify each one, and build separate strategies for streamlining and optimizing them on an individual basis.

The contract management stages are:

  1. Contract Request.
    Sales reps take a finalized sales quote and make a request to Legal. Legal will generate a contract that includes all of the necessary terms and conditions for the product(s) and pricing specified in the quote.
  2. Contract Negotiation.
    After the contract is generated, sales reps deliver it to prospects to begin negotiations. Sales reps continue to make changes to the terms and conditions until they reach a final agreement with the prospect.
  3. Contract Approval.
    Contract Approval. Changes to the contract must be approved by all relevant company stakeholders before allowing the prospect to sign it. In general, this includes department managers, executives, and Legal.
  4. Contract Execution.
    Signed contracts take effect and are stored for easy retrieval in the case of a compliance issue or a dispute.
  5. Contract Renewal and Termination.
    Contract Renewal and Termination. License renewals or co-terming require pricing and other terms of the agreement to be reviewed and amended. Or, the contract may not be renewed and end on its termination date.

Contract management stages do not necessarily occur in order. For example, negotiations might result in contract terms that do not receive approval. In that case, the contract would move in-between the negotiation and approval stages. Similarly, the renewal phase may require returning to the negotiation and approval stages if changes to the specific terms and conditions are necessary.

This is why contract management stages are understood to make up a contract lifecycle.

Contract Management Challenges

Effective contract management identifies inefficiencies and bottlenecks so companies know how to manage the contract lifecycle at every stage. Companies should create their strategies to meet the unique challenges of every stage. However, they must also consider the entire experience that the entire process provides to prospective customers.

Without an eye towards both, there will be inefficiencies that decrease the amount of revenue opportunity companies can actually achieve.

The challenges of contract management are:

  1. Generating accurate contract terms quickly.
    Generating accurate contract terms quickly. Legal must ensure terms are comprehensive and accurate. At the same time, contracts must be generated quickly so they do not hold up a deal’s progress. It is a challenge to manage the tension between these two goals.
  2. Ensuring conformity with commercial and legal policy.
    Ensuring conformity with commercial and legal policy. Contract terms must reflect the most recently updated commercial and legal policies, as laid down by management and executive leadership teams, even as they constantly change.
  3. Maximizing cross-selling and upselling bundling.
    Generating contracts that maximize revenue opportunity by offering the right product mix is complex and therefore error-prone. It is also easily overlooked due to time pressures while negotiating a competitive deal.
  4. Organizing communication and approvals between departments.
    Organizing communication and approvals between departments. Requesting approvals from multiple departments, and reconciling differences, is complex. Maintaining a single source of truth that accurately represents the current state of the contract is difficult. Often, several “final” versions of a contract will exist at the end of a negotiation.
  5. Streamlining collaboration with prospects and leads during negotiations.
    Prospects also make changes to contracts during negotiations, and may need to request their own internal approvals. It is a challenge to ensure communication is clear and fluid so it does not get in the way of moving the deal forward.

If these contract management challenges are not handled properly, they can cause problems by significantly increasing the administrative burden within organizations, and by extension, on revenue.  Research shows 42% of companies experience revenue leakage, a direct result of their inability to streamline their internal processes to meet these challenges.

Contract Management & the Sales Cycle

Companies must also understand that one of the main sources of revenue leakage in the contract management lifecycle is actually bottlenecks and inefficiencies at other points in the sales cycle. In fact, executive leadership teams looking to eliminate revenue leakage in CLM processes should begin by evaluating their sales quote and proposal generation process. 

Sales teams that use manual quoting processes cannot avoid CLM revenue leakage. The amount of time wasted when reps are forced to look through pricing and product documentation, and request discount approval, is significant. Opportunities for upselling and cross-selling bundles are frequently missed. And sometimes, the final quote isn’t even accurate and reps must spend time making revisions even as the process progresses to the sales proposal stage. 

When the quote is finalized and the deal enters the contract management phase, Legal must generate a sales proposal with contract terms and conditions that reflect current policy throughout the negotiation period. Maintaining accuracy and version control as requests for changes are made and approved creates a heavy administrative burden that produces additional revenue leakage.

It’s also important to understand that revenue leakage is not the only way these inefficiencies cause companies to fail to achieve maximum revenue impact during the sales lifecycle. Speed is another very important factor. Research shows that the first company to respond to a prospect wins the deal 50% of the time. Manual processes in the quoting and CLM stages of a deal significantly increase the amount of time it takes companies to respond to buyers. That gives competitors an opportunity to respond first, which decreases the amount of closed won deals.

In short, companies that can successfully streamline sales processes and create a connected cycle between quote generation and contract management will increase revenue. That requires automation. Which is why today’s best sales teams turn to sales technology to eliminate manual processes in order to remove bottlenecks and inefficiencies from the sales cycle.

What does Contract Management Software Do?

The best contract management software supports sales teams at every stage of the contract management lifecycle. Without it, stakeholders waste time performing tasks that can be automated. Here are some of the essential contract management functions it’s essential to understand:

  • Contract lifecycle management.
    The most important distinction to understand is the difference between the quoting, contract, and proposal stages of a deal. The common understanding of the word “contract” includes all of these stages–first you get the pricing/product terms, then you add in the legal jargon, and then you present the whole thing in a proposal.
    But in this case, this understanding of ‘contract’ is both too broad and too narrow. Too broad because sales quotes (i.e.: pricing and product combinations) are not included. And too narrow because all of the redlining and approval workflows that it creates are included–all the way up to the use of e-signature to close the deal.

    But in this case, this understanding of ‘contract’ is both too broad and too narrow. Too broad because sales quotes (i.e.: pricing and product combinations) are not included. And too narrow because all of the redlining and approval workflows that it creates are included–all the way up to the use of e-signature to close the deal.

    In other words, contract management software includes creating the contract, adding it to a complete proposal, managing the changes throughout the negotiating process, and signing the finalized agreement.
  • Templating. Companies often have standard legal or business language they insert into contracts as a matter of routine. Contract management software adds this language into the contract automatically. Advanced contract management software can also auto-populate contracts with clauses and provisions specific to a deal (i.e.: based on products, countries, etc.).
  • Redlining. Stakeholders make changes during negotiations. Because this process is dynamic, often with many changes being made over time, it’s not practical to generate an entire new agreement for every alteration. Contract management software allows stakeholders to propose changes to specific parts of the contract while leaving the rest of the agreement untouched. This is known as ‘redlining’.
  • Versioning. Versioning is the term used to describe how edits to the initial contract are managed. Throughout the negotiation process, stakeholders will make changes. Manual processes often result in multiple ‘versions’ of a contract existing because stakeholders will make changes in isolation.

    Contract management software will automatically keep track of all the changes made, across all stakeholders, throughout the negotiation process. It maintains a single source of truth for all changes, so the document viewed in the software accurately reflects the current version of the contract.
  • E-signature. Contract management software mimics the experience of signing a contract on paper. With e-signature, you can digitally sign an agreement and give it the full legally binding status as a contract signed with traditional pen and paper.

Who uses contract management software?

Contract management requires so many different moving parts to come together. Therefore, it should come as no surprise that contract management software is used by many different stakeholders in an organization. Each stakeholder has their own obligations and responsibilities that automation can optimize, streamline, and help to achieve more efficiency and revenue.

Here are the benefits to different departments and roles in a company:

  1. Executive leadership. Automating contract management allows C-suite leaders to ensure strategic decisions get implemented at every level of the organization. In addition, empowering employees to reduce their administrative workload allows them to spend more of their time performing their core job function.
  2. Operations managers. Operations managers can streamline teams’ intra and inter process workflows. Internally, teams can replace long manual processes with streamlined automation. Externally, automatic notifications and version control make cross-departmental communication much more efficient and effective.
  3. Sales teams. Sales teams benefit in a number of ways. First, they have peace of mind that the contract terms sent to prospects accurately reflect current strategy. Second, they can negotiate terms from a single source of truth, ensuring no miscommunications end up causing problems. Third, the e-signature capabilities make it easy to close the deal as soon as the prospect is ready.
  4. Customer success. Streamlined workflows provide better experiences for prospects and customers. Friction is significantly reduced, speeding the lifecycle up. Information in the contract is always accurate, creating confidence in the company. And the organization of receiving, negotiating, and finalizing contracts is efficient, reducing frustration at every stage.
  5. Finance. Ensuring the correct legal and commercial provisions are included in a contract allows Finance teams to accurately understand the financial impact of a deal. In addition, version control ensures the financial terms of the finalized deal accurately reflects the parties’ understandings.

There is almost no department in an organization that will not benefit from contract management software. It’s one of the most important investments leadership can make to streamline cross-departmental cooperation, ensure accuracy and proficiency, and provide excellent customer experiences.

What are the Benefits of Contract Management Software?

The aggregate benefits individual stakeholders get from using contract management software provide many overall benefits for organizations. Below are five of the biggest benefits of contract management software that companies can expect:

  1. Risk reduction and improved compliance. Contract management software ensues that the updated versions of liability limiting provisions are included, so there is never an issue with situations resulting in unexpected legal problems. In addition, the overall visibility into the revision process ensures stakeholders can monitor changes and immediately identify any problematic language.
  2. Productivity and operational effectiveness. Using contract management software to eliminate manual processes streamlines every stage of the contract management lifecycle. In addition, the increased visibility makes cross-departmental communication easier and more precise–so there are fewer mistakes that require work to be redone.
  3. Increased accuracy of contracts. By auto-generating contract language that accurately reflects commercial and legal considerations, contract management software eliminates manual errors and ensures language is up-to-date.
  4. Increased visibility into discounting. In addition to the general terms, contract management software provides leadership visibility into discounts offered by sales reps. That eliminates the possibility of a rep “going rogue” and offering a discount that severely undercuts margins, or even makes a contract non-profitable.
  5. Engagement alerts. Maintaining a contract during negotiations requires many departments to work together. Contract management software can automatically notify stakeholders whenever their input is required. This eliminates the need to send emails manually and ensures notifications go out immediately so projects don’t lose momentum.

Contract Management Best Practices

You can use the list below to make sure your organization is following contract management best practices and making the process as easy, efficient, and effective as possible.

Create Pre-approved contract language

Departments should not have to waste their time recreating language that is exactly the same across all contracts. This kind of ‘boilerplate’ language should be created and maintained by Legal. Then, good contract management software can automatically put into any relevant agreement. This is more efficient and frees Legal to spend its time working on more complicated, or unique, provisions. 

Set KPIs

Contract management is no different from any other business function. Companies should lay out their goals upfront and then hold stakeholders accountable. Tracking KPIs can uncover problems with workflow and accuracy that may otherwise go unnoticed. Examples include how long it takes to create a contract, the accuracy rate, and the average length of time for approvals.

Perform Contract Audits

Contract management audits should regularly look for issues in compliance and accuracy. Verify that all contracts meet legal obligations, and also include accurate anti-liability language. Be sure that business terms and provisions accurately reflect current strategy. Failure to continually check for errors or lapses can result in legal penalties and lost revenue.

Check for execution as well. Are your partners compliant with the terms and provisions you agree to? Do you follow up with providers when they are not meeting their obligations? Are you overperforming on your own obligations (“scope creep”)?

Don’t lose revenue you’ve already achieved by allowing signees to either fly under the radar while underperforming on their obligations, or coerce you into performing more than you agree to.

Be proactive

Contract management is often considered tedious, or even a hindrance to closing a deal. However, it is an essential function. Problems must be dealt with quickly. Resist the temptation to revert to once-off fixes or wait until there’s a problem to take action.

Businesses change constantly. Review your workflows and provisions. Identifying problems early eliminates underperformance taking you by surprise, as well as the need to fix costly mistakes that could have been avoided.

DealHub Contract Management

Contract management is one of the most important parts of the sales cycle to get right. DealHub’s DealRoom is next-generation technology that helps companies streamline the entire contract lifecycle. 

Here’s how our DealRoom empowers companies to achieve more revenue from their contract management processes:

  • Simplify contract creation by generating NDAs, MSAs, Agreements, Quotes and other documents. Generate Word, PDF, or web-based documents
  • Use pre-approved templates to minimize errors, intuitive guided creation to ensure accuracy and compliance, and editing capabilities to make changes when needed
  • Standardize approval workflows for cross-department sharing and collaboration, and trigger parallel approval workflows based on configurable criteria
  • Deliver real-time notifications directly to your CRM
  • Streamline revisions with contract redlining, and get access to contract records directly from the relevant account on your CRM
  • Maintain momentum with real-time customer engagement notifications, and get notified when the contract is shared with additional stakeholders
  • E-signature integrations that make it easy for prospects to sign deals
  • Store contracts for easy retrieval, and automatically sync signed docs with your CRM
  • Integrate with major CRMs such as Salesforce and Microsoft Dynamics 365

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