8 Critical Contract Management Process Mistakes Being Made Today
Contracts are the lifeblood of most businesses, and contract-related mistakes can have serious repercussions. Even worse are the contract management process mistakes made within an organization because they can affect every contract executed later.
- The worst mistake you can make is retaining your current paper-based and document-centric process instead of choosing a data-centric process
- Keeping contracts siloed and not engaging all stakeholders are also mistakes
- You can avoid most contract management process mistakes by using data-driven and automated contract management software
What is the Contract Management Process?
Contract management is a multi-step process. It involves everything from the initial contract request to obligation management and dealing with contract expirations and renewals. In most organizations, it goes something like this:
- Request and intake: Someone in your organization requests the contract and gathers all the crucial information required
- Creation and drafting: Authoring or assembling the first draft of the contract
- Negotiation and reviews: The first draft gets distributed internally for review and then externally to all parties, and differences are negotiated
- Revisions: Any additional changes are made and tracked
- Approvals: Internal stakeholders, including legal staff, conduct a final review of the contract and provide their approvals
- Execution: The contract goes to both parties for physical or electronic signatures
- Management of obligations: Both parties fulfill the obligations specified within the contract
- Auditing and reporting: The executed contract is available for auditing if necessary and for generating reports
- Renewal: At the end of the contract period, where the contract can either expire or be renewed or renegotiated
Mistakes can happen at any of these stages.. Fortunately, most contract-related mistakes can be minimized or completely eliminated by switching to an automated contract management software solution, such as that offered by Contract Logix.
What Are Some of the Worst Contract Management Process Mistakes?
It’s also possible to make mistakes when developing a process for your organization. These contract management process mistakes are worse in that they can affect all the contracts in which your firm engages. Here are some of the worst of these mistakes – all of them preventable with better planning and modern tools like CLM software.
1. Relying on Paper-Based Processes
Perhaps the biggest you can make in contract management is to continue to rely on your existing contract management processes if it is paper-based. Most older systems are paper-based and afford none of the reporting and analytical benefits offered by contract management software. Paper-based systems can’t do much more than store your physical contracts – and often do that with insufficient security and organization. Paper-based systems are also slow and inefficient and require significant amounts of manual labor.
2. Embracing on a Document-Centric, Not a Data-Centric, Process
Contract management software can be either document-centric or data-centric. All contracts are digitized, stored in individual electronic files, and organized by folder in a document-centric process. While this is a more efficient and more secure method of storing contracts than in a physical system, those are all the benefits you’ll realize.
A better approach is to design your contract management process to be data-centric. In a data-centric system, content from each contract is tagged or entered as separated fields in a database. This data can then be easily searched for, accessed, and used for reporting and analysis purposes. A data-centric contract management process opens up all the data stored in your contracts to provide useful insights into your business and the contracts you execute.
3. Keeping Contracts Siloed
Even if you adopt a data-centric approach, your contracts can remain siloed in individual departments throughout your organization. If different departments or branches are permitted to create and manage their own contracts, you may not even know that some of these contracts exist, let alone gain access to the valuable data contained within. Whatever contract management process you adopt, you must be sure that it encompasses every aspect of your organization to be effective. It’s critical to centralize all of your contracts and related documents in one data-driven and cloud-based repository. This ensures a single source of truth for your CLM efforts.
4. Not Engaging All Stakeholders
Siloing often happens when not all stakeholders engage during the design of the contract management process. You need to involve all individuals, departments, and branches that touch contracts in any way to make them a part of the process. Consider their needs and how they are needed to ensure efficient and accurate contract creation and fulfillment – and make sure they buy into any new process you develop. This can involve in-house legal and legal operations, sales, marketing, finance, procurement, IT and any other relevant parts of the business.
5. Not Integrating Contract Processes with Other Systems
A data-centric contract management process can be even more powerful when it integrates with other systems and platforms in your organization. Consider, for example, the benefits of integrating contract management with CRM systems, enabling you to pre-fill contracts with accurate customer information and feed information about contract obligations to customer accounts. Even better, integrating your major systems enables employees to work cross-platform without leaving one system to enter data in another.
6. Not Clearly Defining Responsibilities
When designing a new contract management process, everyone involved with your contracts must know their role. All employees and departments need to know what they are and are not responsible for and what parts of the process they shouldn’t be involved with. If you don’t clearly define responsibilities, you may end up with some parties overstepping their authority or some duties not getting done. We recommend using a RACI model to outline exactly who’s responsible, accountable, consulted, and involved in your CLM efforts at each stage of the process.
7. Not Reviewing and Revising the Process
Many organization’s don’t periodically revisit and discuss their CLM process to determine if it’s still adequate, effective, and appropriate for their needs. This is a mistake with any process, nevermind the one that’s used to manage your legal agreements. You need to constantly review the process and evaluate what’s working well and what’s not. You should be willing and able to revise the process over time to make it better.
8. Not Moving to an Automated Contract Management Platform
Almost all of the mistakes you could make when developing a contract management process can be avoided by embracing an automated Contract Lifecycle Management (CLM) solution. CLM software helps automate and speed up the entire contract management process, reduce errors, and provide detailed reporting and analysis, among other benefits. In addition, with contract management software you will mitigate more risk, increase your compliance, and ultimately finalize business faster.
Let Contract Logix Help You Avoid Mistakes When Developing Your Contract Management Process
When you’re thinking of developing or refining your contract management and avoiding contract management process mistakes, turn to the experts at Contractlogix. Our automated CLM solutions are built on the data-centric model and help you automate and streamline your contract management process and give insights useful to your entire business. In addition, our products are trusted by leading organizations in healthcare, pharmaceutical, energy, and other risk-sensitive industries.
Contact Contractlogix today to learn more about developing a new contract management process.