A contract can have many aspects to manage. A simple sales contract, for instance, will stipulate the purchase price, when the purchaser must pay the purchase price, and when the seller needs to deliver. It may also have other conditions relating to the sale. Not too complicated, right? But with more intricate contracts, things it can become more complex, with more obligations and more conditions.
Most companies don’t have only one or two contracts to manage. There are contracts in every department of a company that determine everything from the people hired, partnerships formed, and purchases made. So, multiply the number of contracts by 100. Maybe by 500. Then, there’s a lot more things to manage and it’s easy to see why shared folders and spreadsheets struggle to keep up. When there are a lot of contracts to work with and manage, there must be a better solution to improve the contract management process and make it easier.
A contract management system is the solution. In fact, it’s a must-have for any company that has a busy contract portfolio. We’d even go so far as to say that contract management can make or break a company’s future. The thing is, there are so many options available that the process of selecting and implementing such a system can be complicated. This article will simplify this process for you by identifying some must-have features in an effective system.
Why Use a Contract Management System?
A 2019 survey found that because 68% of businesses experienced inefficiencies due to fragmented contract processes, they were looking for a holistic, automated way to manage their contracts and up their efficiency. Contract management systems are designed to offer this, and they can equip companies and users to do their jobs better, faster, and smarter.
Before looking at the features any system should have, let’s look at some of the benefits a proper contract management system can bring to any business. It can:
- Shorten approval times – by automating the contract workflow, it expedites the review process and makes the process more efficient.
- Increase contract visibility – it stores all files in a central, digital repository, that makes it easier for all team members to locate the most up-to-date documents.
- Improve audit preparation – as a system of record with a full audit trail, it makes contract audits easier and more efficient.
- Manage renewals – it can give renewal notifications that increase renewal awareness and ensures that every necessary action is taken for contract renewals.
- Ensure contract compliance – by streamlining the process, every contract that’s negotiated can be held to compliance standards. This ensures that no critical terms are deleted, required terms aren’t missed, and that the right people edit and approve contracts.
- Improve document management – a central document repository keeps documents in one place that makes them easy to manage and find.
- Improve commitment to completion – automation, proper management of review and approval allows the contract lifecycle to be completed faster.
From this, it’s clear how a contract management system can improve contract workflow efficiency. Now, what features should a system have to give all these benefits? Let’s take a look.
Central Contract Repository
When managing a large number of contracts, spreadsheets and outdated filing systems simply won’t do. So, having contracts stored in one central electronic repository is an essential feature of any good contract management system. With it, users can have access to contracts at any time and it can give them useful information on them.
Managing contracts bring with it many menial tasks that take up a lot of users’ time while not generating any revenue. AI-assisted contract management systems can solve this problem by automating large parts of the process which, in turn, lowers processing and operating costs, reduces negotiation cycles, erroneous payments, and legal costs.
To make the contract management process more productive, the system should have configurable workflow builders to configure review and approval routing. It should also offer support for escalations and forwarding and come with prioritisation settings that help users create specific workflows for high-risk contracts.
Having all the documents in a central repository doesn’t help much if users aren’t able to search for documents (or inside documents). Any effective contract management system should therefore have a powerful global search function. Without it, it would just be another version of a filing cabinet. Users should be able to search all contracts and their related documents. With it, they can search the full text of documents, associated information and metadata, and never miss any vital information.
Deadlines and obligations are an inevitable part of contract management. Missing deadlines and not complying with contractual obligations can be disastrous, so it’s vital that a contract management system gives alerts on these dates. Users should be able to set up alerts for any date in the contract and when these alerts should be sent, how they should be sent, and how often they should be sent.
There’s a wealth of information in a contract repository, but to gain value from it, users need a dashboard where they can see this information and extract reports from the system. The important thing, though, is that different users have different needs and responsibilities. These needs can also change as the business and the user’s responsibilities change. For this reason, the dashboard should be customisable to suit the requirements of each role.
For the same reason that the dashboard should be customisable, users should also have different permissions. Users, depending on their role, shouldn’t be able to perform the same tasks and should not have equal access to contracts. The system should thus allow the defining of different roles and configuration of access and permissions for different users.
Managing Contracting Tasks
An effective contract management system should make it easy for users to perform common contracting tasks like creating new contracts, amendments and extensions. It should be easy to request new contracts or changes to existing ones on the system, and there should be an extensive library of standard clauses and contract templates readily available for use.
By having this, it saves time and allows a legal team to concentrate on more complex legal matters. Apart from this, users should also be able to see all earlier versions, edits and revisions of a contract to see how it has evolved.
Often, contracts do not stand alone but are part of a series of interconnected contracts – for example master service agreements and statements of work, and contracts with multiple amendments and restatements. This means that there may be many related obligations and deadlines spread through multiple documents. It also makes managing contracts far more complex and the system should allow users to manage these effectively and provide a holistic view of all contracts across the entire organisation.
A large part of contract management is managing the risks that come with the contract. Users should be able to configure models to track financial risks, contractual risks, and third-party risks. They should be able to look up and use internal and external data to determine risk scores and proactively manage risks.
Contract management software should allow electronic execution of contracts so that every part of the contract lifecycle is digitised. E-signature capability can be provided as a built-in feature or via integration with any well-known e-signature solutions in the market.
Integration With Familiar Apps
The system should integrate with other software that the business uses every day. This helps users to create, view, approve, and collaborate on contracts without having to switch between systems. This makes users more productive and increases their adoption rate of the contract management system.
The system should be easily customisable without needing users to write code or perform other complex tasks. Users should therefore be able to change and configure the application if they need new workflows, rules, or fields without detailed training.
Besides easy configuration, the system should also be easy to use – it’s important that it has an intuitive interface. This further increases user adoption and makes the system sustainable in the long run.
Manageable Deployment Time
Digital transformation projects are often complex, so implementing a contract management system can take time. However, implementing a system that requires too many technical resources to configure and deploy can lead to delays and put the project at risk. It’s therefore important to look at a system that can be deployed quickly without lengthy implementation projects.
An effective contract management system can totally transform the way a company manages its contracts, risks, and performance when it comes to contracts. By making sure the system has the must-have features described in this article, a company can ensure that the system will work for them and make their contract management processes significantly more efficient and productive.
What features are most important or what are some features we missed? We’d love to know your thoughts.