November 30, 2022
Contract Management Software - A Detailed Guide for 2023
What is Contract Management Software?
Contracts are foundational arrangements for defining business relationships. They consist of agreements between two or more entities, whether written or spoken. In this case, between a business and a customer, partner, investor, employee, etc.
Contract management software enables businesses to manage their contracts. It helps organize, streamline, and simplify the contract lifecycle, from creating contracts to getting approvals and signatures. Contract management software typically provides features that allow users to manage contract clauses and templates, create their own contracts, collaborate on contract terms, track contract expiration dates, redline changes, and create reports.
Benefits of Contract Management Software
The legal team oversees the creation and management of contracts, making them the primary beneficiaries of contract management software. The legal team can use contract management software to draft, edit, and approve contracts. These tools help to get new contracts approved faster, which in turn generates revenue for the organization.
"With Contractbook we have one place for all our contracts. It's ideal for us that we can create, sign and store all our legal documents on a single platform, so everything is streamlined, effortless to find and easy to execute on. Contractbook makes working with contracts easy and efficient."
Good Monday - Lise Buchhaven, COO
Contract management software aids the finance team in making decisions concerning targets, budgets, revenue, and billing. The department can identify the company’s financial obligations and opportunities in the wake of an unexpected situation, such as the COVID-19 pandemic. And with this information, they can prepare for the future and advise subsequent contract negotiations.
"By using Contractbook, we have a great overview of all our legal documents. Our team has easy access to all the right templates, we can follow our contracts through their lifecycle and it's easy to see what is the next step in the process."
Viggo - Mads Vieth, CFO
The sales team is greatly impacted by contracts and their bottlenecks. If the sales department does not have an effective contract strategy or management, it may be left wanting with delays and contracting issues. These contract management issues can often be related to PDFs in sales.
"Contractbook is the perfect contract tool for a high-growth scale-up like ours. They have helped us automate key processes in our business and they make our sales efforts so much easier by integrating seamlessly with our CRM system which keeps everything in sync and reduces manual work significantly."
Pleo - Ida Støier, Director of Sales & Partnerships
As such, an effective CMS is a valuable resource for sales teams to close deals faster. It informs sales reps on targets they need to meet. Learn why contracts and sales are inseparable for Pleo’s Director of Sales & Partnerships.
Human Resources Department
The role of the human resources department has evolved. In addition to hiring and firing, HR professionals are now responsible for many other critical functions, including employee benefits, compensation, training and development, and performance management.
"Contractbook enables us to work as a team. We can easily share templates with each other, collaborate on the documents and we can oversee the legal work in the entire team, so we can rest assured that everything runs smoothly. It gives me peace of mind knowing that we have everything in Contractbook."
Soundboks - Hans August Carlander, Chief People Officer
Given this shift in workforce dynamics, it’s no wonder that contract management software is becoming a priority for HR reps to streamline their day-to-day operations. Check out the story behind the importance of contracts for Soundboks.
Operations is responsible for keeping everyday processes on track while ensuring the efficiency and reliability of the company infrastructure. Visibility of the contract data throughout the company allows the operations department to provide timely execution of tasks related to external stakeholders.
“With Contractbook, we have an organized, structured and safe repository for our legal documents. What is even better is that Contractbook has automated the creation and management of our compliance documents which saves us a ton of hassle and manual work.”
Pave - Nitin Gupta, Head of Growth
Procurement is another department that deserves huge consideration when debating on who needs a contract management tool. The procurement department often has to request contract processing through the legal team. However, they can increase their efficiency with access to a contract management system that allows self-servicing.
Like the sales and procurement teams, a CMS is invaluable to the marketing department. For instance, a good handling system lets them deal appropriately with service and other working requests like campaign agreements, and agreements with vendors or influencers.
“Contractbook has enabled me to grow and scale my business in a new way. We can automate repetitive manual tasks related to contracts to get rid of paperwork and work more efficiently. We ensure more consistent and reliable results. And I can easily keep track of all the contracts in my organization, so I always know what to do. We miss 0% of our deals, save 80% of our time, and our contracts are 100% correct.”
Mutebox - Christian Toft Back, CMO.
Importance of Contract Management Software
A typical Fortune 1000 company manages about 20,000 to 40,000 contracts at any time.
Is it a tedious task? No doubt. Businesses have to create, negotiate, review, approve, and execute 20,000 to 40,000 contracts in a day.
Manual management of contracts is not only time-consuming but also requires high costs. Moreover, it makes the contract prone to errors, compliance issues, unmet deadlines, and financial risks. There are many benefits you can achieve with contract management apart from setting the contract management KPIs. The key benefits of contract management include timesaving, increased contract visibility, and lower costs and risks. Below you can find additional reasons why managing contracts is important for your business.
1. Improvement in Business Performance
The process of managing contracts emphasizes enhancing the efficiency with which a business is run. It identifies the right tools, such as software or platform that best automates the company’s contracting processes.
The efficiency that results from automation also comes with added advantages and they include reduced errors and overall improvements. It also means the employees can spend more time on improving other business areas or strategic contract processes like evaluation.
2. Yields Profit with Less Risk
On the surface, contract management appears like an expensive task with little value for a business. That is because some notable aspects focus on abstract and not easily measured ideas. However, managing contracts properly has serious economic value for a business.
Business executives may attempt to quantify the value. And while quantifying risks and benefits may not be straightforward, the legal team or contract manager can leverage an excellent management system to show this important aspect. The reality is that any business that manages contracts better will experience a marked increase in business value through other benefits.
3. Improves Financial Performance
One way of establishing an increased business value is through financial performance. Contract automation and management make it possible to track transactions and financial performance. This is made possible through properly coordinating the relationship between a business and stakeholders, customers, clients, investors, etc.
Businesses thrive on financial transparency which is exactly what proper management of contracts does. By identifying the sources of income and spending direction, businesses can cut out unnecessary expenditures. That is in addition to identifying cost-saving opportunities.
4. Efficient Risk Control
Another factor that is usually challenging to quantify is risk. However, companies can measure risks. Risks are sources of losses for a business and a major factor for determining risk is uncertainty. One of the benefits of contract management is that it clarifies business activities, thereby reducing uncertainty and risk.
With an excellent management system in place for contracts, companies can easily recognize ongoing and expired contracts. Contracts that have insurance obligations or indemnification clauses are brought to light. They can also identify contracts with auto-renewal or termination provisions which results in zero missed deadlines and great customer relationships. All these combine to give certainty and an acceptable risk level. Each data point will also be essential in other business decisions that assist with adequate risk control and management.
5. Enhanced Contract Compliance
Managing contracts benefits companies by enhancing complete compliance with contracts and contract terms. That’s because the management system specifies each contract’s conditions, expected procedures, and required timeframes with individuals in charge.
This helps the organization maintain a high compliance level. And the higher the compliance level, the lower the risks and the higher the overall business value.
Essential Features of a Contract Management System
When it comes to contract management systems, there are a lot of features you can consider. However, the following are must-haves when considering effective contract management software.
1. Standardized Templates via Editor
The availability of standard templates written with appropriate and formal language is essential. It saves your teams the trouble of drafting contracts from scratch or rewriting prior versions of contracts when the contract management tool comes with a built-in editor.
A native editor allows quick contract creation with a user-friendly UI. As an added bonus, you have the capability to auto-generate docs by answering a simple questionnaire or using your own templates.
2. Centralized Repository
The software should have a single location to store all the contracts and essential documents. This centralization helps keep your management processes smooth and transparent. It also means your team does not have to look for files because there is a single source of truth throughout your organization.
Learn more about organizing contracts in a single repository. Book a demo today!
3. Streamlined Workflows and Renewal Reminders
Workflow management with automated reminders is a vital feature that assists in creating seamless collaboration across teams. It enables the removal of friction from the contract review process and automates manual tasks like renewal by simply defining custom triggers while keeping your data synced with your other tools.
Assess the power of automated workflows yourself. Book a time with our experts for a demo.
4. Digital Signature
A digital signature feature native to the contract management system is crucial. More than one cloud-based eSign method is great to have as it makes the digital signature easy, secure, and legally binding all across the globe.
Find out how Contractbook provides multiple methods for digital signatures by booking a meeting with our team.
5. Version History and Secured Data
Contract tracking by comparing two documents side-by-side is an outdated technique. PDFs are being shunned from the contract space because tracking down changes is almost impossible. Version history makes all changes within a document clear. Using a tool that stores your data in formats such as JSON keeps your contract data future-proofed as well.
Get the overview of end-to-end contract management software in this video.
6. Integration with Other Business Systems
It's important that your contract management software syncs with other systems as that aids in multitasking. For instance, customer relationship management software works well when combined with contract automation software, since the two can interact to allow you to simultaneously improve customer relations and automated contract workflows leading to a more streamlined sales handoff as well.
For example, you can manage your contracts better by integrating Salesforce with Contractbook.
Getting Started With a Contract Management Software
The contract management process has greatly improved by introducing systems like automation. Automation incorporates management software that creates viable solutions to problems that have plagued the process in the past.
Therefore, businesses can better create, review, track, oversee, and execute contracts. And as a result, they can get more economical and financial value amongst other advantages. There will also be more streamlined processes with greater accuracy, security, and efficiency.
That is why you should choose contract lifecycle management software that can offer all the solutions your business needs to achieve an efficient contract workflow. Excellent management software can scale with your organization through long-term solutions that are reliable and easy to use.
Frequently Asked Questions
Why is Contract Management Required?
A contract may involve complex relationships with customers and multiple stakeholders with differing interests. On top of this, a contract will include an agreed set of deliverables or outcomes to be achieved by all parties involved, along with key performance indicators (KPIs) and service levels that must be met. There may also be penalties for failure to meet certain targets. All of these factors can make it extremely difficult for you to keep track of contractual obligations. So, you need an effective contract management tool in place.
How Does Contract Management Work?
In the past, firms managed contracts in many forms. They include hard copies that fill up office spaces and pdfs that get lost in inboxes. Today, it has shifted and expanded into using contract management software. A Gartner report reveals that contract lifecycle management has evolved from a relegated record-keeping system to an indispensable business practice. The report posits that contract lifecycle management addresses costs, risks, and revenue maximization.
What are the 7 Phases of Contract Management?
When managing contracts for any level of business, some fundamentals define the quality of the process. These fundamentals include request, creation, review, approval, analytics, and termination or renewal. Each one is explained below.
1. Contract Request
Contact request is where the contract process begins. It involves identifying relevant details and documents to the contract. Depending on the department where the contract originates, the specifics of each contract are likely going to be peculiar. Usually, management software will accelerate the process. For example, creation of a contract proposal by a sales team member.
2. Contract Creation
Contract creation involves the process of authoring contract details, usually from a template. The process sees a combination of different clauses and business objectives. In the past, this was achieved through Word documents; a method that features several errors and risks.
Meanwhile, when contract processing software is used, less experienced personnel can create contracts just by inputting certain details. Also, each department can self-service within the business rules and goals.
3. Contract Review
The contract review process involves collaboration with team members and third parties to confirm details and finalize negotiations. The management system must incorporate adequate features for comparing, tracking, and changing document versions for this process without creating confusion.
4. Contract Execution
After the review, a contract is approved and execution begins. The contract approval process could require passing the contract through certain parallel or serial flows to ensure all-around agreement and compliance. After that, the contract is put into motion with the necessary signatures. Contract lifecycle tools have an e-signature function for making the process seamless.
5. Contract Performance Tracking
Contracts can last for different timelines with milestones in-between. While the contract process is ongoing, it is essential to analyze performance from time to time. This is just as important as previous steps in the system since it ensures compliance and tracks progress. Contract tracking is also important for terminated contracts for more encompassing performance analysis.
6. Contract Amendment
This involves changes to the initial contract agreements. This happens when there is a new development that did not exist when original negotiations were in progress. However, an amendment is tricky and needs to be addressed carefully to avoid compromises. Contract managing systems are equipped to deal with such developments because they keep document backups and track changes.
7. Contract Termination or Renewal
At the end of a contract process, involved parties must agree to terminate or renew the contract. Terminated contracts are archived in the database while renewals begin the cycle all over again. Keeping track of all these details is crucial to contract processes. The contract lifecycle management software has features for tracking these details and notifying relevant teams or individuals.