Contract management vs. document management

In today's business world, the terms contract management and document management are ubiquitous. However, although they are often used interchangeably, they are fundamentally different. Companies are faced with the challenge of using both processes effectively to ensure efficiency and transparency in their business processes.

This article highlights the differences, similarities and possible applications of both approaches and shows how companies can benefit from a strategic combination.

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What do contract management and document management mean?

Contract management

Contract management comprises the structured organization and monitoring of all processes associated with contracts in an organization. This includes tasks such as negotiating, drawing up, signing and monitoring contracts throughout their entire life cycle. The focus is on minimizing risks, ensuring compliance with legal requirements and effectively managing contractual obligations.

Efficient contract management is particularly important for companies, as 70-80% of business processes are governed by contracts. Studies show that inefficient contract management can lead to losses of up to 40% of the contract value. Such losses are caused, for example, by missed deadlines, unplanned contract extensions or risks that are not recognized in good time. 

Document management

Document management refers to the systematic organization, storage and management of documents in a company. The aim is to structure physical and digital documents in such a way that they can be accessed quickly and easily. The aim is to optimize work processes, increase efficiency and clearly allocate information.

At the heart of document management is the ability to manage all company-relevant documents in a structured and clear manner, regardless of the medium.

Examples:

• Organized filing of paper documents.
  
• Electronic storage in folder structures or cloud services.
  
• Standardized processes for archiving and indexing.
  
  

Similarities

Even if contract and document management differ in their objectives and specific tasks, both pursue the overarching goal of making processes more efficient, transparent and structured. Both approaches help to optimize access to important information, automate workflows and save valuable time and resources.

These processes are increasingly being digitized in every industry. While digital filing often lays the foundation, many companies now rely on specialized tools and software solutions that meet individual requirements.

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Tools at a glance: Contract and document management systems

What is a document management system (DMS)?

A document management system (DMS) is a specialized software solution that digitizes and automates document management. A DMS helps companies to efficiently store, organize, search and archive documents for the long term. 

Functions and advantages of a document management system

• Central storage: All documents are stored in a central digital location, which enables quick and uncomplicated access for authorized users.
  
  
• Time savings: Studies show that optimizing search processes with a DMS can significantly reduce search times, which can increase productivity in day-to-day work by 15-20%.
  
  
• Collaboration: Functions such as approvals and versioning facilitate collaboration in teams, as several people can work on documents at the same time without risking version conflicts.
  
  
• Compliance: Compliance with legal requirements is ensured by integrated audit trails and access controls, enabling companies to reliably meet legal requirements such as the GDPR.
  
  
• Transparency: A DMS offers complete documentation of all changes and accesses, which strengthens the internal overview and process understanding.
  
  
• Sustainability: Reduces paper consumption by up to 10,000 sheets per year, which is good for the environment and saves costs.
  
  

A document management system replaces manual organization and also offers advanced functions such as intelligent search algorithms, automation and integration into existing systems.

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What is a contract management system (VMS)?

A contract management system (VMS) is a digital solution that takes on central contract management tasks and helps companies to organize and manage contracts. The use of a VMS not only makes contract management clearer, but also significantly less error-prone. This creates the basis for optimized processes and a better overview.

Functions and advantages of a contract management system

Central contract management & analysis

A VMS enables the central storage and organization of all of a company's contracts. Modern systems also offer functions such as categorization and filter options to adapt contract management to the company's individual requirements. With functions such as OCR technology and AI-based data analysis, relevant contract data can be efficiently extracted and analyzed. This speeds up the retrieval of information, saving valuable time.

Automation: workflows and templates

Automated processes such as templates, digital signatures and standardized workflows significantly reduce manual effort. The automatic import of contracts via CSV upload, email forwarding or drag-and-drop minimizes errors and increases speed. Efficient contract management can reduce negotiation time by up to 50 %, cut operating costs by 10-30 % and increase the return on sales by up to 9 %. 

Efficient risk management

A VMS supports the early detection and minimization of potential risks. Automatic notifications help to keep an eye on deadlines or contract extensions, which avoids unplanned renewals.

Improved collaboration and clarity 

A VMS enables several teams to access contract information at the same time. Comment functions, access rights and document sharing promote collaboration. These functions improve communication and significantly increase productivity.

Compliance with legal requirements and data protection

GDPR-compliant contract management is ensured through audit trails and encryption. Every change is properly documented and access controls ensure that only authorized persons can access sensitive data. A VMS also enables adherence to compliance requirements. 

Adaptability and integration

Modern VMS solutions can be flexibly adapted and integrated into existing software such as CRM or ERP. This enables further automation and centralization of processes, which offers companies added value in the long term.

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Application in companies: How DMS and VMS can be used optimally

As can be seen from the previous section, document management systems and contract management systems (VMS) fulfill different requirements. Each system specializes in specific processes and offers companies valuable support if it is used appropriately for the respective needs.

Limitations of a DMS in contract management

A document management system is the ideal solution for organizing and managing documents. However, it reaches its limits when it comes to managing contract data. A contract management system can compensate for these weaknesses, but does not replace a DMS, as it is not designed for general document management. 

Weak points of a DMS for contract management

• Lack of transparency: Without specific workflows, changes and revisions to contracts can be difficult to track, which can lead to compliance issues.
  
  
• Lack of monitoring: Functions such as automated deadline monitoring or contract analyses are missing in a DMS.
  
  
• Increased risks: Ineffective contract management can lead to average losses of 9% of annual sales, according to World Commerce and Contracting.
  
  
• Manual effort: DMS often require manual entry of contract details, which increases the susceptibility to errors and missed deadlines.
  
  
• Unsuitable structuring: Contracts are complex documents that have specific versioning and clause management requirements that a DMS often does not offer.
  
  

Advantages of a combined solution

While a DMS specializes in general document organization and a VMS optimizes the management of contracts, the combination of both systems complements their respective strengths. 

• Optimized processes: Both general documents and contracts can be organized centrally, which increases efficiency.
  
  
• Time and cost efficiency: Redundant work steps are digitized and significantly reduced, which shortens the processing time for tasks and saves resources. In addition, companies report a 20% higher lead conversion rate and a 24% reduction in sales cycle time.
  
  
• Long-term flexibility: Combined solutions can be adapted and scaled to the growing requirements of a company.
  
  
• Transparency and overview: contract content, deadlines and risks are managed in a legally compliant manner. Studies show a 75-90% reduction in incorrect payments through the use of VMS.

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Conclusion: Strategic use of DMS and VMS

A document management system is an efficient and cost-effective solution for organizing documents, reducing search times and promoting sustainability. It offers an ideal introduction to the digitalization of company processes, especially if extensive contract management is not required.

In the long term, however - and especially with an increasing number and growing complexity of contracts - the implementation of a specialized contract management system will be indispensable. A DMS alone is not designed to analyze and manage specific contract content, risks or deadlines in a targeted manner. These gaps lead to a lack of transparency, increased effort and a growing susceptibility to errors.

Faulty processes can have serious consequences: Loss of sales, compliance problems or financial damage due to breaches of contract, such as exceeding notice periods, non-compliance with delivery terms or violations of data protection guidelines. Such risks not only jeopardize a company's legal security, but also its reputation.

Recommendation for companies 

• Use a DMS for general document management and as an introduction to digitization.
• As contract complexity increases, plan to invest in a VMS to minimize risks and effectively monitor deadlines.
• In the long term, it is worth considering a combination of both systems in order to optimize processes and be able to react flexibly to growing requirements.
  
  

ContractHero offers a software solution for optimized contract management. Thanks to the central and clear organization of all contracts as well as functions such as automated deadline monitoring, targeted contract analyses and transparent workflows, companies maintain an overview of their contractual relationships at all times, minimize their manual effort and reduce financial risks at the same time. ContractHero makes contract management smart, secure and future-proof.

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