Businesses like finance, legal, sales, and compliance operations highly rely on contracts and require well-built structures and systematic processes.

In this scenario, contract management processes bear greater significance in purposeful strategic planning. And to digitally evolve and transform, it is high time to adopt cloud-based contract management software.

So, let’s understand the six contract management stages and how to improve current contract lifecycle management (CLM).

6 Essential Stages Of Contract Management

1. Request

Companies frequently engage in significant investments, required sales transactions, strategic alliances, or the hiring of new personnel. To facilitate these processes and protect their interests, legally binding documentation is compulsory. When a contract proposal reaches the corporate legal department, a flurry of activity ensues involving people, processes, and technology.

The requested contract may be a standard document like an employment offer letter, credit application, or a rental property lease agreement. Alternatively, it might necessitate a more intricate contract with custom terms, demanding additional preparation, research, and planning. The implementation of a contract management system serves as a catalyst for more efficient negotiations.

2. Generate

If standard contract terms don’t suffice for complex processes like hiring executives or acquiring companies, a dynamic contract assembly tool can repurpose language from a clause library, expediting approval processes. A contract management system eliminates duplication and mistakes to improve professionalism and streamline negotiations. Legal agreements follow a cyclical flow through contract management stages.

3. Negotiation

Once a draft contract gains initial approval within the organization, the negotiation phase begins. Coordinating all necessary participants for discussions can be challenging, often happening outside formal meetings.

Advanced CLM solutions offer the following features:

• Workflow and approval management to preemptively address risk before sharing a contract externally.
• Document version control, redlining, and comparisons for nuanced term discussions (with an audit trail for regulatory purposes).
• A collaborative negotiation portal, allowing privileged users to jointly review and approve contract files from approved devices.

Negotiating contracts, especially with another organization’s counsel, can be competitive. Enhancing transparency and accessibility can mitigate adversarial dynamics in the process.

4. Analyze

Seeking insights into contract renewal trends, supplier selection, or customer churn by industry? A cloud-based contract repository holds valuable information waiting to be unlocked with an analysis tool.

Contract analytics is a cost-reduction tool, enabling targeted marketing to high-performing industries or territories. Identify supplier delays impacting production goals or pinpoint contract managers deviating from approved terms through advanced reporting and dashboard analytics in your repository.

5. E-signatures

After internally approving and externally accepting the contract language, implementing it with traditional paper and ink can be a drawback. The good thing is that e-signature apps have reduced this possibility and offer positive momentum during negotiation deals.

Cloud-based contract management technology allows elite executives to endorse and acknowledge terms with the same significance as an ink signature. Nowadays, e-signatures are prevalent in various agreements, rendering the traditional pen-and-paper approach outdated. You can even get a notary to sign your documents electronically for that extra layer of validation and verification.

6. Manage

After contracts come into effect, it becomes crucial to monitor whether each party fulfills the commitments and promises made during negotiations, including deliverables and milestones.

If performance is deteriorating, there might be penalties or termination in the offing. A contract management system establishes a foundation for more effective negotiations. Conversely, if things are progressing positively, the likelihood of an extension or term renewal increases. The most engaging phase of a contract’s lifecycle occurs post-award.

A contract management system, offering visibility into performance metrics such as the probability of contract renewal, milestone tracking, and notifications for pending auto-renewals, can be the differentiator between a business with robust, recurring revenue and one facing survival challenges.

Where Contract Management Stages Fall Short: Beyond The Six Stages

The initiation of a contract request marks the initial step in the contract process, prompting questions about the purpose of the contract itself. Can the contract management process evolve? Is there room to incorporate marketplace insights? Where does the business case fit into the agreement?

A notable divergence between buy-side and sell-side Contract Lifecycle Management (CLM) lies in their contract approach. Sellers focused on receiving payment, may not scrutinize contracts as thoroughly, relying on the evidence found in the financial transaction. However, this perspective overlooks the broader picture and neglects a long-term, value-driven evaluation of the sale.

Buyers often develop a business case before seeking a quote, shaping their contract negotiation strategy accordingly. Sales teams could benefit from adopting a similar approach. Contract management involves “wraparound” processes, integrating the request and generating phases with four planning stages:

• Investigate: Plan product, service, and contract agreements comprehensively through market analysis and expectation confirmation.
• Target: Identify market opportunities and position accordingly.
• Strategy: Make decisions about tendering, configuration, strategic roadmap creation, and develop communication strategies for the contracting phase.
• Design: Develop bids, and contracts, and prepare for execution.

Conclusion

These stages bridge the gap between marketing and sales since each decision involves the contract management process. Improved contract management processes can facilitate the execution of more complex contracts.

Author Bio

Qurat-ul-Ain Ghazali, aka Annie, is the growth manager at Contractbook and looks after all the organic channels. She has been with tech startups and scaleups for a couple of years with a B2B focus. You can find her socializing, traveling, indulging in extreme sports, and enjoying the local desserts when she is not working.