Learn how your organization can implement these best practices to streamline processes, enhance compliance, and achieve remarkable results.
In today’s modern business, effective contract management is paramount for success, and powerful contract management software is an essential element. From defining clear roles and responsibilities to leveraging the power of artificial intelligence, this practical guide explores ten contract management best practices that will ensure a successful launch of your contract management software. Through sample case studies, we'll explore how companies like a global conglomerate, a multinational software corporation, and a cloud content management company can implement these best practices to streamline processes, enhance compliance, and achieve remarkable results.
1. Define Clear Roles and Responsibilities:
Upon implementing your contract management software system, it is important to define the roles and responsibilities of all stakeholders involved in the contract lifecycle, including contract owners, legal, procurement, and finance. Decide who is responsible for creating, reviewing, approving, sending, signing, and tracking a contract. Clear guidelines and expectations can improve accountability, collaboration, and contract outcomes. It also allows relevant stakeholders to focus on their areas of expertise and avoid unnecessary review of the entire contract. Your contract management software can support this process through role-based security features that provide access to authorized individuals while preventing others from viewing sensitive data or documents in the repository. Read below about how one global conglomerate defined roles and responsibilities within their organization.
2. Establish KPIs and Reporting Metrics Up Front:
Setting up metrics in advance can help deliver objective data that you can use to optimize your process, improve your partner relationships, and potentially increase your revenues. KPIs should be specific and measurable. Below are some data points to consider:
- Measuring Contract Efficiency: Measuring efficiency can help see where you are falling behind or where there are inefficiencies. This includes time spent reviewing a contract, time spent completing a contract (contract lifecycle time in days), and time spent negotiating a contract (minimal time to signature). Additional KPIs to consider are minimal changes to agreed contract language, the best possible value from contract agreements and renewals, and maximum compliance with contract obligations.
- Measuring Partner Performance: How many times a contract was revised, whether the contract's obligations have been met, and which vendors insist on non-standard clauses.
- Measuring Contract Risk: Contract risk assessment can be gauged through various metrics such as the variance in standard clauses, the quantity of contracts expiring without renewal dates, instances of unfulfilled contractual obligations, improper electronic signature approvals or vendor authorizations, delays in contract approval processes, task completion for terminated contracts, and the resolution of disputes related to contract terms.
The right contract management software can provide easily digestible reports that allow you to spot patterns that will inform your future negotiations, resolve disputes efficiently, and understand where there are risks and opportunities to improve performance.
Read the example case study below on how a multinational software corporation could define its metrics upfront.
3. Automate routine tasks with workflow automation:
At each stage of negotiations, events can trigger automated workflows that improve efficiency, prevent bottlenecks, and inform everyone of updates. Below are nine of the most commonly used workflows:
- Create standardized contracts with the use of automated contract templates
- Accelerate contract execution with automated alerts and notifications
- Enhance contract approval and review with automated document routing/pushing
- Quickly review contract performance with automated reporting
- Enforce contract approval policies with approval thresholds
- Effortlessly monitor contract milestones to ensure fulfillment of obligations
- Ensure compliance with automated contract language alerts
- Expedite contract signatures with flexible routing options (wet or electronic)
- Streamline contract renewals and expirations with automated reminders and alerts.
To learn more, read our “Guide to Mastering Contract Automation,” which includes examples of automating the contract lifecycle, measuring contract automation improvements, and providing workflow automation examples by role and industry.
Read our sample case study below on how a cloud content management company could automate NDAs to reduce manual work.
4. Simplify Contract Creation with Contract Templates and Clause Libraries.
Clause libraries allow legal teams to develop pre-approved language that makes contract creation and negotiation processes more efficient. For example, when legal teams create contract templates, a process is often as simple as selecting clauses from the clause library and arranging them in the appropriate order. Another example is when an outside party will not accept the terms in a specific clause; the clause library can house alternate fallback language written for these repeatable situations and be ready at a moment’s notice.
5. Improve Negotiation & Collaboration with Automated Alerts and Audit Trails.
Be alerted if someone tries to modify a clause. Contract management software that tracks every contract change helps all parties understand how the document evolves over time. Instead of sitting down to read every line in a contract, they can focus on recent revisions. Modern software can store all versions of a contract, so it's possible for companies and individuals to review past versions. With the contract's entire history stored in a central repository, it's easier for all parties to stay apprised of changes so they can reach an agreement. In addition, collaboration can be enhanced with automated Alerts that provide real-time reminders to relevant stakeholders.
6. Leverage Dashboards to Systematically Track Obligations and Compliance.
Mitigate risk by employing easily accessible dashboards that monitor the obligations of both parties, key performance indicators (KPIs), and the remaining time until renewal.. With real-time updates, organizations can keep up with the fast-paced, data-centric business environment. Additionally, these easily accessible dashboards prove invaluable for routine performance assessments and compliance audits.
7. Integrate Your CRM and E-Signatures With Your Software.
Frequently used software integrations include customer relationship management (CRM), enterprise resource planning (ERP), electronic signatures, and supply chain solutions. Integrating these technologies with your contract management software offers several advantages, such as gaining deeper insights, reducing costs, enhancing efficiency, and facilitating improved decision-making processes.
8. Leverage a Centralized & Secure Electronic Contract Repository.
Maintaining contracts in a centralized repository is crucial for quick access and confidentiality. A cloud-based repository offers added security measures and permissions to safeguard contracts and their contents, serving as a valuable disaster recovery tool. Contract management software can act as a central repository for contracts throughout the lifecycle. The most effective contract repository features let you add metadata such as the customer's name, the contract's creation date, and the date that parties signed a contract. The ability to add meta tags helps people locate contracts quickly. Full-text search offers additional functionality by letting employees search for contracts by keywords, clauses, and other elements in a document. Storing contracts in the cloud reduces the need for excessive emails and paper documents.
9. Align with best-in-class security protocols
When digitally storing your company’s sensitive information, security is a primary concern. Your contract management software must be able to have a robust contract repository with best of class security features. Your systems should be able to handle complex data privacy regulations and provide advanced search and retrieval capabilities along with configurable access control to manage only those that need access. Furthermore, it should provide a secure platform with collaboration and negotiation tools and protect against hacking with multilayered security features. For example, the Microsoft Cloud Infrastructure, including Microsoft Endpoint Manager, Microsoft Defender, and Microsoft Sentinel, provides an unprecedented level of security. If you are a company that uses Microsoft, then leveraging this security within your contract management system should be a priority to maintain the same level of security for your contracts.
10. Leverage AI
The advent of Artificial Intelligence has revolutionized contract management. Some best practices for using AI in contract management include metadata extraction, clause comparison, risk rating, clause extraction, obligation extraction, contract summarization, contract language translation, contract analytics and automation, and AI-influenced workflow. Read our in-depth article on 10 Practical Ways to Apply AI to Contract Management to learn more about how AI empowers organizations to improve efficiency, reduce risks, and gain valuable insights.
Example Case Studies
1. Global Conglomerate Defines Clear Roles and Responsibilities During CLM Software Implementation
- Company: A global conglomerate with a complex network of contracts automates across its various business units and geographical locations.
- Problem: Managing these contracts manually is time-consuming, error-prone, and lacked visibility. The company aims to improve contract lifecycle management by implementing a contract management software solution.
- Solution: Clear roles and responsibilities for various stakeholders involved are defined as such as:
- Project Team: Form a dedicated project team comprising of representatives from legal, procurement, IT, and relevant business units. This team is responsible for overseeing the entire implementation process.
- Executive Sponsorship: A senior executive is assigned as the project sponsor, providing the necessary leadership and resources to ensure the project's success.
- Business Units: Each business unit identifies key personnel who could regularly interact with the contract management software. These individuals are responsible for inputting contract data, monitoring milestones, and generating reports.
- Legal Department: The legal team is responsible for defining contract templates, ensuring compliance with legal requirements, and reviewing contract terms before they are entered into the system.
- Procurement Team: The procurement team plays a crucial role in supplier contracts. They ensure that supplier contracts are accurately entered into the system, and they monitor contract performance and renewals.
- IT Department: The IT team handles the technical aspects of the software implementation, including integration with existing systems, data migration, and customization based on specific needs.
- Result: The streamlined process enhances efficiency, compliance, and decision-making across the organization's contract management processes.
- Efficiency: The streamlined process reduces manual errors and administrative overhead. Contract creation, negotiation, and approval becomes faster and more accurate.
- Visibility: All stakeholders gain real-time visibility into contract status, milestones, and obligations. This transparency helps in making informed decisions.
- Compliance: The legal team ensures that contracts adhere to regulatory and legal standards, reducing the risk of non-compliance.
- Renewal Management: Automated alerts enable proactive contract renewal management, preventing missed opportunities.
- Data-Driven Insights: Standardized reporting and analytics provide actionable insights, enabling better negotiation strategies and cost savings.
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2. Multinational Software Company Defines Clear Metrics & KPIs Upfront
- Company: Multinational software corporation that develops software for the architecture, engineering, and construction industries.
- Problem: The company has a growing number of contracts and agreements with customers, partners, and suppliers. Managing these contracts manually is becoming challenging, leading to issues such as missed deadlines, overlooked renewal opportunities, and inconsistent compliance monitoring.
- Solution: Before implementing contract management software, they take a proactive approach by defining clear metrics aimed to achieve through the implementation:
- Contract Turnaround Time: They identify contracts taking longer than desired to move through the approval and negotiation process. They establish a KPI to reduce the average contract turnaround time by a certain percentage.
- Renewal Rate: They want to improve their contract renewal rate by ensuring timely notifications and reminders for contract renewals. They set a KPI to increase the renewal rate by a specific percentage over a certain period.
- Compliance Monitoring: They define metrics related to the number of compliance breaches detected before and after software implementation.
- Contract Visibility: They aim to enhance visibility into contract status and milestones for various stakeholders. They establish a KPI to measure the percentage increase in real-time access to contract information.
- Cost Savings: The company recognizes the potential for cost savings through improved contract management efficiency. To this end, they set a KPI to measure the reduction in contract management operational costs.
- Result: Their proactive approach in establishing KPIs and metrics before implementing contract management software helps them achieve specific goals related to contract efficiency, compliance, and cost savings and highlights the importance of setting measurable objectives to guide the implementation process effectively.
- Faster Turnaround: By focusing on contract turnaround time, the company reduces delays and bottlenecks in the contract approval process, moving contracts through the pipeline more efficiently.
- Renewal Success: Automated renewal notifications and tracking increase the renewal rate. They can capture more renewal opportunities and retain valuable contracts.
- Enhanced Compliance: Automated alerts and monitoring features help identify compliance breaches early, minimizing risks and potential legal issues.
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- Improved Visibility: Stakeholders gain improved visibility into contract status, which enhances collaboration and decision-making across departments.
- Operational Efficiency: The software streamlines manual processes, leading to operational cost savings and frees up resources for more strategic tasks.
3. Automation of NDAs by Cloud Content Management Company
- Company: Cloud content management and file-sharing service company that facilitates collaboration among businesses.
- Problem: The company frequently enters into non-disclosure agreements (NDAs) with partners, customers, and vendors to protect sensitive information. To improve efficiency and reduce manual work, they implement contract management software to automate the NDA creation process.
- Solution: Utilize contract management software to automate the creation of NDAs through standardized templates and tailored clauses:
- Standardized NDA Templates: The legal team creates a library of standardized NDA templates containing pre-approved language and clauses. Each template is tailored to specific scenarios, such as vendor relationships, customer partnerships, and intellectual property discussions.
- Customization: While the templates contain pre-approved language, the contract management software allows for customization based on the specific context of the NDA. This ensures that each agreement addresses the unique needs of the parties involved.
- Automated NDA Generation: When a new NDA is required, the legal team selects the appropriate template from the library. The software automatically populates the agreement with relevant details and clauses based on the customization inputs.
- Compliance and Regulatory Adherence: The software integrates up-to-date legal language and regulatory requirements into the templates. This ensures that all NDAs are compliant with current laws and regulations, reducing legal risks.
- Workflow Automation: The software is configured to initiate automated workflows for NDA approvals. Relevant stakeholders, including legal, management, and internal teams, receive notifications and tasks for review and approval.
- Results: NDA automation using standardized templates and tailored clauses can efficiently create NDAs while adhering to specific needs and regulatory requirements, resulting in streamlined processes, improved accuracy, and better resource allocation. For example:
- Time Savings: The automated process drastically reduces the time required to draft and finalize NDAs. Legal team members are no longer burdened with manual document creation and review tasks.
- Consistency and Accuracy: Standardized templates ensure that NDAs are consistent in language and clauses, minimizing the risk of errors and ambiguities.
- Adaptability: The ability to customize templates allows the legal team to address specific requirements of each NDA while still benefiting from standardized language.
- Compliance: The integration of updated legal language and regulatory requirements enhances compliance and minimizes legal exposure.
- Efficient Approvals: Automated workflows streamline the approval process, ensuring that NDAs move through each stage promptly.
Effective contract management is the cornerstone of successful business operations, and the ten best practices outlined in this guide provide a roadmap for transformative change. From establishing KPIs to automating routine tasks and leveraging the power of AI, these practices offer a comprehensive approach to optimizing your contract lifecycle. Embrace these best practices, and you'll be well on your way to contract management excellence.
Contracts 365 is dedicated to our clients’ successful implementation, providing in-person, online, and video training and ongoing support that includes 24/7 access to live representatives. For more insights on how our contract management software can streamline your contract lifecycle management processes, reduce costs, and support your company’s bottom line, browse Contracts 365’s library of free resources or schedule a demo to let us show you in person.