Contract Management and its benefits.
Contract management is outlook by all business owners as contracts form an integral part. We enter into contracts with our employees, stakeholders, and other people. Managing all these contracts is crucial for the success of a business. If you’ve any doubts about the contract management process, we have explained it below.
A contract can be defined as an enforceable agreement between two or more parties, in which all parties are obliged in the performance of the contract. In simple words, a contract is a written agreement between parties to perform a task.
The basics of a contract are that there should be an offer, an acceptance to offer, and consideration. The legal rules for a contract change according to the country and its type.
What is Contract Management?
Contract Management are all the activities undertaken by an entity, to manage the performance and resources to get the desired outcome from the contract. It includes contract creation, execution, analysis, and renewal/revocation. Contract management is also known as Contract lifecycle management. If contract lifecycle management is not properly done or if the contract is not properly claused, the outcome of the contract will be a loss. Every organization’s goal in a contract is to minimize costs, optimum usage of resources, and maximize profits. All these can only be achieved through contract management, which can be done both in a traditional way, which is time-consuming and also through automated contract management systems.
The traditional method of contract management involves a lot of paperwork, which has to be maintained, preserved, and recorded. If something happens and the contract is revoked/breached, it would be a hectic task to find the proper document and resolve the situation. Whereas when it comes to the modern way of contract management which is through automated tools, everything is digital and stored in the cloud, you won’t have to waste your time on searching documents or even maintaining those documents. Contract management is not only the management of a single contract but also the management of various contracts at the same/different time.
Importance of Contract Management.
Contracts are an integral part of all businesses be it small, medium, or big enterprises. All businesses enter into contracts with their vendors, employees, or others to provide consideration. It is important that after entering into contracts, we do not lose track of all the commitments, and get startled by them. If a business fails to execute the contract, they end with huge losses. A proper contract lifecycle management system should be opted by the business to track all the contractual exercises. Only when businesses know what’s in their contract, they can properly comply with the needs and obligations of the contract. Without proper contract management, you would tend to lose track of your contractual obligations.
Benefits of Contract Management.
There are many benefits you can reap from modern content management. The only thing you have to do is switch from traditional to modern methods.
Let’s have a look at some of the major benefits of contract management:
- Operative Efficiency
- Better business functioning
- Reduced Risks
- Improved Tracking and Auditing
- Renewal Reminders
With modern contract management, efficiency has been increased with the help of automated tools for managing contracts. Unlike before manual efforts are not much needed, resulting in better functional efficiency. Now those persons can invest their time in more strategies for contract management.
Better business functioning:
Now with effective contract management systems business functions will be smoother. All contract-related activities are made more linear by the automated softwares. With proper management of contracts, the business can get timely payments and also schedule things accordingly.
You don’t have to ever worry about losing some important documents relating to your contract/customer. Unlike the traditional methods, we don’t have to store paper bundles of information that are not even organized. The modern method i.e contract management system gives you cloud storage for storing your contracts and customer information. If you want to find anything, you just have to type in the name/number, it is well organized too.
Improved tracking and auditing:
Tracking and auditing of contracts is an integral part of a business which was hard to do in the traditional way. Without proper tracking and auditing, we won’t know where our resources and money go and what changes are to be made. While executing the contract, if things don’t go as planned and without tracking and auditing we won’t be able to find out what went wrong. Only if the issue is found proper alteration or amendments can be made to the contract. With automated softwares, contracts can be easily tracked and managed, and necessary changes can be made.
Contracts after the due date get canceled if no actions are taken. The businesses using the traditional method of contract management tend to forget the due/renewal date. In the old method, we are losing that opportunity where we could renew our contract and stay obliged. With the introduction to contract management softwares, such issues are no more as a reminder can be kept on the date of renewal. By that benefit, we have no reason to lose an opportunity of income for our business.
Phases and Stages of Contract Management process.
The contract management process starts soon before the creation of a contract, it extends throughout the life of a contract. The contract management process can be classified into 3 phases: Pre-Award, Award, and Post-Award. Each phase contains different stages of Contract lifecycle management.
A contract starts with an offer where a person offers a service/product for consideration in return. All things before negotiation and signing of contract belong to the Pre-Award phase. The pre-Award phase is the first among three phases and the phase before the contract is signed and executed. This phase can be divided mainly into two stages of contract management process:
a. Offer The process of a contract starts with an offer the parties express their interest to enter into a contract with each other. An agreement when accepted becomes a contract. This agreement can be verbal to be a contract if accepted. But it’s better to have a written agreement because if things don’t go as expected, it would be easier to resolve/terminate the contract. With the need for a written agreement, the next stage comes into action.b. Authoring A written agreement is better in all aspects compared to a verbal one. Therefore comes the need for authoring, the second stage in the contract management process. The contract should be well written with all the clauses and valid points. Writing a handwritten contract is a time-consuming process but with automated contract management softwares, the process is more simple and straight forward.
The middle phase where the agreement is being negotiated, signed if accepted, and executed. The contract agreement should be in a way that is good for all the parties in a contract. This phase may become lengthy according to the complexity and the type of contract you are entering into. The Award phase can be divided into three:
This is the stage where the drafted agreement is altered and made suitable for all the parties involved. The parties communicate their needs and the agreement is layered accordingly. This is a repetitive process until it meets all the needs of all parties.
After the negotiations, the agreement now meets all the needs of all the parties. Now the offeree, the person to whom the offer is made or the buyer, accepts the offer and signs the agreement, which legally converts to a contract.
After signing the contract, it’s time for all parties to deliver their part. If any of the parties fail to fulfill their part of the contract, the contract can be revoked and sue the party. If the execution of the contract is carried on properly the next phase comes into play.
The last phase of the three, the Post-Award phase is where the contract is tracked, audited, and renewed/terminated.
In this step, all the activities of the contract are tracked and audited. The obligations delivered by the parties are checked along with the value of the contract. At this time, revisions and amendments if needed are made. After all this, the contract is audited to find whether all the parties comply with the terms and conditions of the contract.
After the period of a contract is finished it is either renewed or terminated. In most cases of manual contracts, the chance for renewal is missed and the contract is canceled. With automated softwares, renewals can be reminded.
What are Contract Management Software and its importance?
So our traditional way of managing contracts was through bundles of papers filed in a folder kept on office storages, this would only increase the business’ inefficiency.
Contract Management software is an internet-based approach to managing contracts. All your contracts can be saved on cloud storage provided by the software providers. The software provides several other useful features like reminders for signing and renewal of contracts, etc. The takeaway feature of the software is that anyone with access can access the contract from anywhere at any time.
Unlike the traditional way, there will be no more hassle to manage and track contracts. With these additional features contract management softwares helps us to increase our business efficiency, save time & space, and save a lot of money from manual labor.
Here some important points about contract management software:
- With automation of content lifecycle management, the risk of human error is diminished.
- The amount spend on manual contract managing can also be reduced up to a certain extent.
- All your contracts will be stored on cloud storage where certain information (which we decide) of the contract can be accessed by stakeholders too.
- Business efficiency increases as all the contracts are closely tracked and audited.
- Don’t lose any opportunity for renewals with reminders.
Some takeaway points to help you catch up:
- Contract management is important for every business.
- Contract management process can be phased into 3:
- Switching to automated software will only benefit your business:
- Increase business efficiency
- Reduce risk
- Increased operational efficiency
- Better tracking and auditing of contracts
- Renewal and signing reminders
- Single repository for all contracts
Contract management is an integral part of every business, managing and tracking contracts can be easy if you switch to modern methods.
If you are someone running a business with many contracts, managing them in the traditional, then it’s time to upgrade to the latest technology. The software benefits your business and you also know that, so think about upgrading.
We hope that you have understood what is contract management in 2021 and its benefits.