The Ultimate Contract Approval Workflow Checklist
What does the contract approval workflow look like in your organization? Do you even have a formal process for approving new contracts? It’s important that all the right people have the opportunity to review and approve your firm’s contracts—and that the workflow doesn’t get bogged down by inserting too many people into the process.
Consider this ultimate contract approval workflow checklist when you want to streamline your contract approvals while ensuring the necessary reviews and compliance with internal and regulatory policies. It contains all the necessary steps to ensure an efficient and effective approval workflow.
- A contract approval workflow is a step-by-step process of ensuring the necessary approvals for a new contract.
- Every contract needs to be reviewed and approved by the appropriate individuals or departments, which may include the department head, contract administrator, legal counsel, and finance.
- Some organizations require senior management or ownership to approve contracts above a certain dollar level.
- Contract automation software like Contract Logix ensures that every person in your organization properly and efficiently follows each step in the contract approval process.
What Is a Contract Approval Workflow
Contracts control up to 80% of current business operations. It’s no surprise, then, that tightly managing the contract approval process is key to a business’ success.
Contract approval workflow consists of all the steps to review and approve a contract. It identifies the key individuals or departments that must give their approval, from initiating a contract to signing the final version.
In most companies, the contract approval workflow is a set process. The same person or department has to approve the creation of every contract and the same people or departments, such as legal and financial staff, have to give interim approvals along the way.
A defined contract approval workflow is essential to managing the entire contract process. Without the proper approval steps, rogue contracts could make it through without the necessary review. It’s crucial, for example, for legal staff to ensure that a contract is legally sound. It’s equally important for the accounting or finance teams to ensure that a contract makes financial sense. Other staff may also need to ensure that contracts meet company standards, comply with industry regulations, and are in the company’s best interests.
Who Needs to Approve Your Contracts?
Most companies specify who can originate new contracts. They don’t want just anyone in the organization cooking up a contract. This initiation restriction isn’t technically an approval level, although it serves to weed out unauthorized or spurious contracts. These could be in the form of requesting an agreement on your paper, submitting one for approval on third-party paper, or even taking a template such as a NDA and asking for it to be approved.
Once the parties initiate the contract, it has to go through multiple levels of approval. Every organization is different in terms of who needs to approve a contract in its various stages, but there are some common roles.
In many organizations, the manager or head of a department must approve all contacts initiated, requested, or submitted in that department. It makes sense for the head of marketing, for example, to be aware of and approve the request of any marketing-related contracts—to order marketing materials, for example, or engage the services of a marketing consultant. Only someone within a department will know whether a department-related contract is warranted and within budget.
Many larger organizations have a separate contracts department responsible for managing all of the company’s contracts. In this situation, it’s necessary to get the approval of the contract administrator. This person is typically responsible for ensuring that all contracts are in the proper format, contain the appropriate language, and meet the company’s standards. Ideally, they leverage clause and template libraries that are pre-approved by Legal and maintained in contract management software.
A poorly-written or executed contract can put an organization in legal jeopardy. For many contracts, especially larger ones, it makes sense to obtain the review of legal counsel. If you have an in-house legal staff, that means getting that department’s approval. If you don’t have in-house legal, you can often engage the organization’s appointed attorneys to make sure the contract is legally sound.
Legal staff can also help to ensure that the contract complies with all applicable industry and government rules and regulations. Regulatory compliance is a top priority for 57% of senior-level executives, and if your organization has a compliance department or officer, they will take responsibility for compliance approvals.
Given that most contracts involve some monetary exchange, either to or from your company, it may be necessary for someone in the finance department to approve the contract. The finance team will run the numbers to account for everything and that the contract meets the company’s financial guidelines. In fact, it’s fairly common for contracts over a certain dollar value to be reviewed by finance to ensure they are within the organization’s approved budget.
Depending on the size or importance of a contract, various senior management may need to give their approvals. In some companies, the CFO or CEO must approve contracts with a value above a certain amount. In smaller companies, the owner or president may want to approve all contracts over a set dollar amount. Some owners may want to approve every contract after all other staff have given their approvals.
Finally, somebody has to sign the contract. Think of contract execution as the final approval level. The signatory can refuse to sign if they don’t approve of the contract’s terms, language, or even nature. Regarding who has the authority to sign, this differs from company to company and contract to contract. In some organizations, department heads may have the authority to sign contracts below a specified dollar amount. In other organizations, the contract administrator may have signing approval. Many companies require the president or owner to sign all contracts, no matter how small. Make sure that the signatory has legal signing authority—and approves of the contract to be signed.
Check Off the Steps in This Ultimate Contact Approval Workflow Checklist
Put it together in order and have a step-by-step contract approval workflow. Contract approval may need to go through the following steps:
- A contract request is made. This could be for a new contract that needs to be assembled or the submission of a contract on 3rd party paper.
- If the request is for a contract on your paper, an authorized employee (typically someone in the contract or legal department) originates and creates the first draft of the contract.
- The head of that requester / initiators department either approves the creation of the contract or the contract’s first draft.
- The department head then forwards the contract to the contract administrator for review, edits, and approval.
- After the contract administrator approves the current draft, the contract passes to legal counsel for legal review and approval.
- Often simultaneous with a legal review, the finance department performs a financial evaluation and gives financial approval.
- Employees rout the contract to senior management or ownership for approval for contracts above a specific dollar amount.
- After final edits, the contract goes to the official signatory—the owner, senior management, or contract administrator.
Consider each step an essential component of the contract approval workflow checklist.
Why Automating the Contract Approval Workflow Makes Sense
An organization can institute a manual contract approval workflow. In this situation, the company must manually circulate contracts for approval, with requested edits between steps. This usually involves emailing contracts around to various people or physically walking them to someone’s office. This manual approach creates risk and is inefficient and slow. What if a contract gets lost in someone’s inbox? What if the contract gets routed to the wrong person for approval?
Contract approvals are much easier when the entire process is automated. You can do this via contract lifecycle management (CLM) software. CLM software creates a digital contract workflow, where every step from initiation to execution is fully automated. Contracts automatically route to the appropriate individual or department for each approval process step. No unapproved contracts are left sitting on anyone’s desk. No contracts are accidentally sent to the wrong individual or not sent to the right one. It all happens automatically, ensuring a more efficient and error-free process.
Let Contract Logix Automate Your Contract Approval Workflow
It’s important to have an efficient and tightly controlled contract approval workflow. Our CLM Platform is an easy-to-use solution that automates every step of the contract lifecycle, replacing inefficient and error-prone manual processes with an all-digital process that ensures every contract goes through the necessary approvals.
Contact Contract Logix today to learn more about automating the contract approval workflow.