In my earlier blogs, I’ve laid out the importance of contracts to overall digital transformation initiatives, how to identify, assess and mitigate risks in contracts, as well as contract lifecycle management KPIs that are key to track. Now I’d like to highlight some of the top best practices my company has collected from more than 15 years of working with customers to modernize their contract management processes. While no two organizations are the same, similar themes and issues bubble up.
Use a central electronic repository specifically built for contracts so they are easy to track, search, manage, and secure. Many organizations store contracts in shared folders across multiple locations and formats, which is risky and inefficient at best, catastrophic at worst. An online, centralized repository keeps agreements organized, gives you the ability to easily search and report on contract data, and also greatly reduces the risk of contracts being lost, overlooked, and accessed by the wrong individuals.
Choose a solution that integrates all elements of contract management to streamline processes. There are a number of different tools currently available on the market that allow organizations to track, manage and store agreements. While there’s nothing wrong with the software itself, the fact that these systems don’t “talk” to each other increases inefficiencies. A single system specifically built for contract management is what streamlines the process. When you can create and execute contracts, track progress, search and report on data, and automate workflows from a single piece of software, contract management becomes more effective and efficient. It’s also important for your CLM software to integrate with other business applications like a CRM or ERP using an API.
Manage financial risk by using automated alerts. Overlooking something relatively “simple” like an automatic contract renewal can cost organizations thousands of dollars or worse. When teams are manually tracking dates using filters or custom sorting tools, there’s plenty of room for human error. Automated alerts, tasks, and calendar reminders allow organizations to stay on top of critical contract milestones, as well as providing an archived history of alerts and notifications for management and audit purposes.
Increase productivity and mitigate risk using clause and template libraries. Drafting contracts can be an onerous process. Creating a shared and collaborative template library allows organizations to leverage pre-approved language, which helps assemble “negotiation-ready” contracts faster —while eliminating deviations from standard legal language.
Encourage real-time, frictionless collaboration. Cloud-based solutions that allow parties to collaborate and negotiate contracts in real-time are another great way to minimize risk and increase efficiency. Choose solutions that enable all parties to concurrently review, approve, and mark-up contracts in a secure way, on their own devices. This approach has the added benefit of providing an audit trail of the entire collaboration process which makes managing version control easy and accurate.
Always be audit ready. A centralized contract repository that can provide full contract history data makes compliance much easier to achieve, and automated alerts and process workflows make preparation for an audit habitual, rather than rushed, stressful, and disorganized. Plus, the ability to generate reports in real-time makes finding and disseminating the required information incredibly fast and easy.
Automate approval processes to eliminate bottlenecks. CLM software tools allow organizations to automate the scheduling of email notifications to be sent to contract approvers, and e-signatures can be used to get documents signed faster. E-signatures also help with Best Practice 6, as they carry a digital record about who, when, and where a document was signed to ensure authentication and help with audit trails.
Clearly define workflows for the entire contract lifecycle to automate processes and improve compliance. Automated workflows eliminate the need to manually track and facilitate each step required to request, draft, review, approve, and execute a contract, and they can also be customized for each organization to ensure that business processes are followed.
Think like a Chief Information Security Officer. Contract data is some of the most sensitive data an organization has and must be protected. Solutions that offer roles- and feature-based permissions can help ensure that individuals and organizations have the appropriate access to contract-related information. Additional functionality like multi-factor authentication (MFA), single single-on (SSO) and data encryption can also help keep data secure.
Report on progress. Reports and dashboards allow organizations to measure success and create better, more informed processes and business decisions over time. The organizations with the most modern contracting practices use reporting to collaborate with internal stakeholders and develop KPIs that are most important to the business.
Contracts are the backbone of every organization and managing them efficiently and effectively is critical to the business’ success. These best practices can help any modern organization digitally transform contract management across the pre-execution and post-execution phases of a contract’s lifecycle, making teams more efficient and productive and help mitigate contract risk.