Estimated reading time: 5 minutes
• If you’re looking for ways to manage spending and improve your profit base you cannot afford to overlook contract management.
• You see, according to analysts from PricewaterhouseCoopers, effective contract management can save businesses up to 2% of their annual costs. And without an efficient contract management strategy, companies stand to lose 9.2% of their overall bottom line.
• But before making a case for contract management (CM) and answering how contract management works, let’s first define the term.
What is Contract Management?
The Chartered Institute of Procurement & Supply (CIPS) defines contract management as:
“…the process of creating, implementing, and reviewing contracts.”
In layman’s terms, CM refers to the work done by a contract manager to generate, execute and appraise contracts. This work includes:
· Handling contract requests
· Negotiating old and new contracts
· Submitting contracts for legal review
· Signing contracts
· Storing contracts
· Engaging vendors for contract renewal
Now that we’re familiar with what contract management is, how does contract management work?
How Contract Management Works
The best way to study how contract management works is to familiarize ourselves with the contract management lifecycle (CML).
1. Contract Requests
This step launches the contract management process. The buyer typically initiates the contracting process – an operation that takes the average company 20 to 30 days to create, negotiate, and finalize a contract. Information gathered during this stage is used to draft the contract.
2. Contract Review
The second step in how CM works involves the review of the draft document by the respective parties. Negotiating of the clauses, terms, and conditions takes place at this stage. Those responsible for signing and approving the contract are also determined during this phase and if both sides are satisfied, signing details can be captured.
3. Contract Approval
Before the contract is finalized, however, it must first be sent for legal review to designated attorneys. Without the use of contract management software (CMS) Forrester and Aberdeen report that this can take on average 3.4 weeks. With CMS, this time can be drastically reduced by 82%. Once assessed by the legal team, the contract is sent to internal and external approvers for final deliberation.
4. Contract Execution
With a go-ahead from the approvers, the contract document is then issued to the respective parties to be signed. If you’re using contract management software this can be done online. If not, the contracts need to be printed out and physically signed which can extend the execution process.
5. Contract Storage
One of the biggest advantages of contract management software is the availability of a contract database where all contracts are filed. This indexed repository makes it easy to store and retrieve contracts as and when they are needed. Given that 71% of organizations cannot locate 10% of their contracts, this certainly helps to streamline your own operations, saving time and money.
6. Contract Retrieval
Did you know that 64% of all cases in U.S. state courts revolve around contract disputes? You want to be able to easily search for and locate your contracts. That’s why we advocate for contract management software. By applying filters, you can wade through hundreds of contracts in seconds to retrieve the documents you’re looking for.
7. Contract Auditing and Reporting
Businesses rely on data to make decisions today. Without adequate contract governance, auditing, and reporting, KPMG experts say businesses can lose up to 40% of a contract’s value. That’s why one of the key steps in the CML is auditing and reporting.
By mining contract data, your teams can quickly generate detailed reports that can be issued to stakeholders and internal departments so data-driven decisions can be made.
8. Contract Renewal
The final stage in the contract management lifecycle revolves around contract renewal. Stay on top of contract end dates and avoid paying renewal penalties by relying on notification alerts built into contract management technology. It’s what best-in-class companies do. And that’s why they get to save money when they automatically renew 56% of their contracts each year.
The Case for Contract Management Software
The best teams today realize the necessity of investing in good contract management software. Consider the following statistics:
- According to Forrester and Aberdeen, contract management digitization improves contract compliance by 55%.
- 32% of professionals waste up to 30 minutes trying to find a single contract.
- Contract management platforms allow organizations to reduce contract administrative costs by an average of 40%.
- Contract software is responsible for a 70% improvement in contracting cycle time.
- Companies that adopt contract lifecycle management achieve 1% larger deals and a corresponding 2.5% higher annual customer renewal rate.
What’s shocking, however, is that in spite of all the evidence in favor of contract management software, a staggering 55% to 70% of businesses do not as yet have any form of effective contract management system in place.
If this is you, there is a way to remedy the situation. ProcurePort boasts one of the best contract management software on the market today.
Our cloud-enabled platform is intuitive and features a modern user interface with a low learning curve. This is one of the reasons our solution has such a high rate of adoption. Are you ready to get started?
Invest in Reliable Contract Management Solutions
Contract management is such an important function of your business, deserves a worthy automated solution. When only the best contract management software is good enough, think ProcurePort.