As more and more business owners and freelance professionals look to increase their productivity without adding additional staff, streamlined contract management has taken on a bigger role in their daily operations. And the fact that Gartner estimates between 60%–80% of all business transactions are governed by contracts only serves to highlight the need for a simplified procedure. Contract management is a time consuming process, and if it’s not automated, owners or employees will have to spend a considerable amount of time ensuring contracts are managed correctly in order to achieve the highest productivity and reap the largest financial benefits.
If your business relies on contracts with your employees, vendors, partners, or customers, it’s important that you have a firm understanding of how to properly manage them. Here’s a brief overview of contract management and the nine typical stages of the process.
What is Contract Management?
Anytime you enter into a contract with a person or another business, you submit yourself to a minefield of potential risks. Contracts are complex documents that need to be managed throughout their life cycles in order to mitigate those potential risks. For instance, you will need to negotiate the terms of the contract, ensure all parties comply with those terms, and oversee any amendments or changes during the life of the contract. This process is called contract management, and its importance cannot be overstated.
If you run a business or operate as a freelance professional and use contracts as part of your business strategy, here are the nine stages of contract management you should master in order to mitigate legal and financial risks.
Stage One: Identify Your Needs and Reasons for Requiring a Contract and Then Make the Initial Request
This is the least talked about aspect of content management, but if you don’t do proper due diligence here, it could seriously cost you in the future. Considered the pre-award stage, the first step in contract management is to properly identify your needs and reasons for requiring the contract. Once you have a firm grasp of what you want to accomplish with the contract, your future decisions will be easier. For instance, if you intend to use it to establish finance terms for your customers, your goal should be to ensure you’re financially protected in a multitude of possible scenarios. Likewise, if you’re a freelance professional creating a project contract, your likely goal will be to ensure payment once you’ve completed the agreed upon tasks.
Once you’ve identified your needs and pinpointed your main reason for wanting a contract, it’s time to contact the other party and make the request for a contract.
Stage Two: Author the Contract
When thinking about authoring a contract, it’s important to remember you are creating a legally binding document, so you shouldn’t approach it haphazardly. That’s why it’s critical that you keep a few things in mind while writing it. First, you will need to think about all the possible scenarios that could arise and address them in the contract. For example, in our above scenario about creating a contract that extends terms to your customers, you would need to address what would happen if that customer filed for bankruptcy, went out of business, or sold the business, as well as many other contingencies.
In addition, it’s important to be specific with your wording, as ambiguity can leave the contract contents up for interpretation. You will also need to determine which state laws will guide the contract, yours or the state the other party resides in. You will have to conduct research and take that state’s laws into consideration when drafting the language.
Even for the simplest of business contracts, it may be wise to hire a professional to draft the contract to be sure your interests are fully protected.
Stage Three: Negotiate the Contract
It doesn’t matter how much research and planning you’ve put into the creation of your contract, if you don’t properly negotiate, you won’t come out on the winning end of the deal. But in order to do that, you must have access to the essential details. For instance, you should have reports that score the capabilities of your potential partner, vendors, or employees, a bid overview, and all the other pertinent information that will allow you to understand the other side’s intentions and goals.
Once you have a thorough understanding of the other side’s viewpoint, look over the contract in detail, but do it through their eyes. This will allow you to identify which negotiating points they’re likely to bring up so you can plan your response in advance.
Finally, sending red-lined contracts back and forth over email or through the mail can be confusing and cause costly mistakes. But if you use contract management software, both parties can view the working document and make changes in real time. This will likely result in faster negotiations and a contract that is optimal for both parties.
Stage Four: Get Approval before Finalizing the Contract
Once the negotiations have been completed, and both parties are in agreement, it’s time to get approval for the contract. And that process will differ, depending on your organization’s procedures. If you’re a freelance professional with no manager or auditor to answer to, you’ll need to reread the contract to ensure it matches what you agreed to verbally. But if you run a company that requires manager approval or has audit procedures, you will need to ensure that all the requirements for approval are met before finalizing the deal. For example, if your company issues procurement policies, you will need to ensure they’ve been met before you seek approval for the contract.
Stage Five: Execute the Contract
This seemingly simple part of the process can cause major bottlenecks if the signing parties are located in different states or other parts of the globe. And when you’re dealing with a tight deadline or time zones that are incompatible, express mail or overnight delivery may not always be the best option. More and more companies are relying on legally binding electronic signatures. After all, a contract isn’t valid until all parties have signed it, so why risk losing the deal because of time differences?
Stage Six: Obligations Management
Don’t be fooled by the fact that it only takes two words to describe this process. Obligations management is a major factor in successful contract management, and it takes a lot of time and skill to do it properly. To successfully manage the commitments of each party, you will have to ensure that each stakeholder is meeting their obligations and deliverables. In addition, you will need to make sure the contract’s value isn’t deteriorating in the early phases of growth. This will require that you utilize schedule reminders to stay in compliance with your end of the contract, and to ensure the other party is keeping up their end as well.
Stage Seven: Keep Up with Amendments and Revisions
It’s rare that a contract stays stagnant from beginning to end. Instead, many revisions and amendments are typically made throughout the life of the contract. It can get confusing to keep up with the changes and how they affect each party; implementing a reliable process to keep track of changes early on will pay off as time passes.
Stage Eight: Audit the Contract
Just because the deal is made and the contract is signed, that doesn’t mean you shouldn’t audit it to ensure all parties are in compliance to the terms. If you fail to audit the contract, it could result in lost revenue, missed deadlines, and many unforeseen problems. Instead, set alerts to remind you when deadlines are approaching or renewals are coming up.
Stage Nine: Stay on Top of Renewals
Speaking of renewals, it’s important to stay on top of renewal timelines because if you fail to identify them, your business can lose the opportunity to renew the relationships. This could cause a hiccup in your operating system, back-end operations, or it could result in lost revenue for your business.
As you can see, contract management is a time consuming task that, if not done properly, can result in significant losses. Contract management technology provides the ability to create templates, streamline negotiations, build approval workflows, sign online, set deadline alerts, view clauses, track revisions, and more from a central platform. That’s why so many professionals are turning to contract management solutions to boost their profitability, mitigate risks, and reduce costs.
Concord is a free cloud-based contract lifecycle management platform for creating, signing, and managing contracts. It provides unlimited e-signatures and unlimited contracts for an unlimited number of users. Concord’s simple-to-use interface includes collaboration tools to streamline contract negotiations. It also has deadline alerts, revision tracking, and more. Keep all of your contracts organized, safe, and private on Concord. Visit www.concordnow.com to start using free contract management tools and free e-signatures today.
Originally published at blog.concordnow.com.
