5 Tips To Improve Your Contract Management Process
After my time as a legal advisor for companies of different sizes, I have identified five simple – yet efficient – ways to improve the contract management process.
Dealing with contracts is part of running any kind of business. Companies often have some form of contract management process. However, it’s not unusual that the process for handling contracts is inefficient. Actually, companies lose approximately 9.2% of their annual revenue by having weak practices for managing contracts (IACCM – ‘ROI of Contract Management’). The lack of an efficient process implies losses in form of missed cost reductions as well as lost business opportunities.
In the following, I will present five simple tips for any company to improve their way of handling contracts.
Five tips to improve contract management processes
Contract creation takes a lot of time — even for the ones who draft the same type of contract over and over again. Although the same contract is used recurrently, one starts off by copy-pasting a little and finishes the creation process by reading through the contract every time to make sure that nothing undesirable has changed.
In other words, a quality assuring process is carried out before many deals or hiring of new staff — even if the contract has been reviewed and proofread once. This is unnecessarily time-consuming.
Get a quality-assured contract in just a matter of minutes simply by answering a few questions
The solution? Contract templates! When it comes to recurring contracts, such as purchase agreements or employment agreements, only certain parts change from contract to contract. Price, salary, notice period, contract parties and maybe purchase object.
By protecting the template from changes to other parts than the varying ones, you can eliminate the need to thoroughly review the contract after every draft.
Not only will you save a significant amount of time by using templates, your team’s understanding of your contractual obligations will increase and contract negotiations will become more efficient.
With contract management software, the templates can be digitized and even automated. Get a quality-assured contract in just a matter of minutes simply by answering a few questions.
Streamline processes for approvals
Time is money. Kind of a cliché, yet true and important to have in mind. I’ve seen many companies losing time and money by dragging on approvals.
Basically, the reality often looks like this: the contract is created, negotiated and ready to sign. But before signing the contract, it must be approved by upper management (such as the company’s CEO).
As a matter of fact, it’s not the contract creation or actual signing that wastes most time. It’s the time between creation and approval! The contract is held up — and as a consequence, the business opportunity might get lost.
It’s not the contract creation or actual signing that wastes most time. It’s the time between creation and approval!
When you’ve created templates for your recurring contracts, it will be easy to streamline processes for approvals. Basically, the authorized employee(s) only needs to proofread certain parts of the agreement.
You can take the process to the next level by creating a workflow that automatically alerts the authorized person(s) when the contract is ready for approval. I’ve seen companies doing this in a very successful way by using Trello. Simply move the card representing the contract between the boards.
Start using electronic signatures
Once the contract has been created and approved, the signing process is initiated. Manual signing wastes time — a lot of time. The paper needs to be managed, indexed and archived.
Manual signatures also increase the time to signing. Think about it. Not only does one need to print the document (which of course isn’t good for the environment). The signees might not even be in the same room, town or even country. This is of course especially painful when a handful of signees need to put their name on the contract. More time is spent, fewer deals are done.
Manual signatures increase the time to signing. More time is spent, less deals are done.
Using electronic signatures have a lot of benefits and I will mention some. It allows you and your team to minimize the time spent on managing paper. Often, the electronic signatures also automatically index and archive your contracts. No more scanning.
Moreover, you can reduce (or even eliminate) costs related to manually preparing and shipping stacks of paper. And sometimes most importantly: electronic signatures are more secure. I mean, how hard is it to imitate one’s manual signature?
Are electronic signatures legally binding?
I often get the question whether electronic signatures are legally binding or not and the simple answer is: yes! Electronic signatures from Precisely are legally binding in 99,99 % of all cases.
They are compliant with regulations within the European Union (see Regulation No 910/2014 – eIDAS) as well as in the U.S. (see Electronic Signatures in Global and National Commerce Act – ESIGN and Uniform Electronic Transactions Act – UETA).
Electronic signatures are legally binding in 99,99 % of all cases!
What about the other 0,01 %? In some rare cases, there are provisions in specific laws that state that the contracts need to have a certain form (e.g. that they have to be written and signed on physical paper). In Sweden, for instance, it’s basically only relevant for purchase agreements regarding real estate and site-leasehold rights.
Keep your contracts in one place
Many contracts in companies are gone. Actually, on average, ten percent of all contracts in a company have completely disappeared. The reason is simple: contracts are often scattered all over the organization. Some are in physical binders, some in the cloud, and some in the email inbox. In turn, this makes it easy to forget where the specific contract is stored.
Consequently, companies need a system for storing and archiving their contracts. Since contracts often are tools to maintain a good relationship between the parties, the consequences of a lost contract can be devastating for the business. The solutions are many, as long as the contracts are kept in one place.
Personally, I prefer digital archiving since it makes the contracts searchable and easy to find. Next time you’re looking for a contract, any contract, you know where to find it.
Create a contract calendar with automated reminders/alerts
Today, many companies experience a lot of pain related to a lack of overview of their contracts. The same goes for companies of all sizes. One basically needs to read through every contract in order to remember the contractual rights and obligations related to each contract.
One reason behind the lack of overview is of course—as mentioned above—that the contracts are scattered all over the company. Another reason is the fact that it basically is impossible to get such an overview without the help of digital means, which is the reason why physical binders in a physical archive is an unsatisfactory solution.
Easily get an overview of what contract-related actions you need to take the upcoming time
However, this is an easily solved problem. Once each contract has been signed and executed, create your own reminders in a dedicated contract calendar. For instance, you can set an alert one week before the contract needs to be renegotiated or terminated.
By keeping the reminders and alerts in one place (i.e. in your contract calendar), you can easily get an overview of what contract-related actions you need to take the upcoming time.
In order to mitigate the risk of missing your alerts in case of e.g. staff turnovers, you should (in the best of all possible worlds) be at least two persons in the company with access to the calendar. This is especially relevant for long-term contracts. Never miss an important deadline again.
I’m sure that my five tips on how to improve your contract management process will increase your productivity and decrease your costs. Less administration, more time for business.