Contract management process: a guide for companies

Overview

• Contract management basics: The central role in business success
• Challenges in traditional contract management
• Advantages of a digital specialized contract management software
• ContractHero: The uncomplicated software for every company
• Conclusion and outlook

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The process of contract management is a decisive factor for a company's success. Contracts are not just legal documents, but regulate key aspects of business relationships - from obligations and objectives to financial agreements. A well-structured process ensures that contracts are not only created efficiently, but also managed professionally throughout their entire life cycle.

Without a clear system, contracts can quickly become a risk: Missed deadlines, inadequate monitoring or inefficient processes can result in high costs and damage the trust of business partners. This guide highlights the individual phases of effective contract management and shows how companies can optimize their processes to minimize risks and get the maximum benefit from their contracts.

Contract management basics: The central role in business success

Whether they are agreements with suppliers, employment contracts with employees or business agreements with partners, they form the foundation on which business relationships are built. From this, it becomes clear why active contract management is not only desirable, but essential for business success.

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What phases are there in contract management?

Effective contract management comprises several clearly defined phases that cover the entire life cycle of a contract. These phases ensure structure, transparency and the smooth implementation of contractual obligations:

• Negotiation and drafting phase:
  In this phase, the needs, expectations and objectives of the contracting parties are defined. A contract is drawn up that contains all the key milestones, services and requirements. This includes initial drafts, offers or letters of intent (LOI). A good contract design in this phase forms the basis for a successful conclusion.
  
  
• Review and finalization phase:
  The draft contract is reviewed for risks, overlaps with existing agreements and legal validity. After final adjustments, the contract is signed - either physically or digitally, depending on the legal requirements and the preferences of the contracting parties.
  
  
• Filing and control phase:
  After signing, all parties receive a copy of the contract. The contracts are archived and systematically managed, including all associated documents such as annexes and minutes. Deadlines and obligations are monitored to ensure that the contract is adhered to correctly.
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• Post-contract phase:
  This phase begins when a contract is terminated or expires. Outstanding services or invoices are clarified and a decision is made as to whether an extension or renegotiation makes sense. In addition, contracts often have to be kept until a certain date in order to comply with legal requirements.
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Structured contract management that covers all phases - from creation to follow-up - forms the basis for efficiency, transparency and security within the company. But what happens if these processes are neglected or poorly implemented?

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The implications of poor contract management

Poor contract management can, at best, lead to longer search times for contracts. At worst, contracts can be lost and missed contract deadlines which can have a dramatic impact on a company, both financially and reputationally.

• Missed contract deadlines

According to a study by World Commerce & Contracting, simple contracts cost about $6,900, while contracts of medium complexity are $21,300, and complex contracts can cost as much as $49,000. Much of this cost comes from missed contract deadlines, as companies that fail to meet their contractual obligations risk claims for damages. Apart from the financial consequences, this can also damage the company's image if customers and business partners lose confidence. 

• Inefficient corporate governance 

According to research by World Commerce & Contracting, companies can lose up to 9% of their total annual revenue as a result of inadequate contract management. This loss results, for example, from automatic contract extensions, unused contract provisions, and inadequate monitoring of contract terms.

• Influence on partnerships

Repeated failure to meet contractual deadlines can quickly lead to business partners terminating the cooperation. This can not only mean immediate financial losses, but also lead to difficulties in new business relationships in the long term.

• Time required for contract search

According to the Journal of Contract Management, about 71% of companies cannot locate at least 10% of their contracts. The reason for this is that finding a specific contract detail can become a tedious challenge in a company that manages hundreds or even thousands of contracts. If a company does not have an efficient contract management system in place, it is not uncommon for employees to spend valuable work time searching for contracts and specific details within them. This not only costs time, but also money and can lead to further delays in urgent situations.

Given these potential risks and burdens, it is imperative for any organization to give contract management the attention it deserves and ensure it has the resources and tools to operate efficiently and effectively.

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Challenges in traditional contract management

Data protection issues with the traditional methods

Many companies manage their contracts via email histories, GDrive, other SharePoint solutions or sometimes still in analog folders. Although the active management of contracts offers numerous advantages, traditional solutions often cannot meet the specific requirements of contract management in terms of security, quick retrieval of information and the volume of information. This can lead to employees gaining access to sensitive or confidential information, important information being lost or overlooked, which can have not only legal but also financial consequences. It is therefore essential that companies that manage their contracts digitally place the highest priority on compliance with all contract management standards.

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Problem of scattered contracts

In the analog world of contract management, physical contracts can easily be misplaced, damaged or even lost. A common problem is that contracts are filed in the wrong place or left on a desk. This seemingly innocuous mistake can have serious consequences, especially if confidential information falls into the wrong hands. It requires an effective and secured system to ensure that all analog contracts are kept safe and proper.

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Advantages of a good contract management process

Structured contract management offers companies numerous advantages that go far beyond mere administration:

1. Overview and control:
   Clear processes ensure that contracts can be found quickly, that terms are monitored and that deadlines are adhered to. This minimizes risks such as unwanted contract extensions or missed notice periods and creates a reliable basis for sound business decisions.
   
   
2. Efficiency and time savings:
   With standardized processes and clear workflows, contracts can be created, checked and concluded more quickly. Templates and automation options reduce manual effort and tasks can be delegated efficiently, as all parties involved (if authorized) have the same information available and therefore know what needs to be done.
   
   
3. Reduction of compliance risks:
   Good contract management ensures that contracts are drawn up correctly and in compliance with the law. This includes compliance with data protection guidelines, the secure archiving of documents and the use of legally compliant signatures. This protects the company from legal and financial risks.
   
   
4. Improving collaboration:
   A centralized system promotes communication and collaboration between departments. All relevant parties have access to the necessary information and can work together more efficiently, which ensures smooth contract processing.

Good contract management not only strengthens operational efficiency, but also a company's reputation. Clear processes signal professionalism and create trust among business partners and customers. This is where software can provide good support.

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ContractHero: The uncomplicated software for every company

Simple, intuitive, scalable and efficient

ContractHero is characterized by its simple and intuitive user interface, which makes the program particularly clear. Regardless of their technical background, users can quickly find their way around. The system is designed to grow with your business. It is particularly suitable for medium-sized companies with 50 or more employees, but is flexible enough to meet the needs of larger organizations. As your business grows, ContractHero adapts as well.
To reduce the likelihood of human error, ContractHero emphasizes effective contract management. ContractHero minimizes these risks by automating processes, ensuring that all deadlines are met, and providing an optimal overview of all contracts. In addition, it offers the possibility of optimally adapting the system to the specific requirements of your company through the customizable fields.

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Conclusion on the contract management process

A clearly defined and structured contract management process is essential in order to manage contracts efficiently and minimize risks. From negotiation to post-processing, well-organized contract management ensures time savings, legal certainty and better collaboration.

With contract management software such as ContractHero, companies can make these processes even more efficient. ContractHero offers intuitive solutions for managing and monitoring contracts, optimizes workflows and ensures that deadlines and conditions are always in view. This makes ContractHero an indispensable tool for taking contract management to the next level and ensuring long-term business success.

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