The cornerstones of effective contract management are visibility, responsibility for outcomes, and collaboration. If your strategy lacks any of these, your business can suffer.
Repetitive actions, duplications, overlooked obligations, and lost opportunities are dire consequences of inefficient CLM. We’ll break down the essentials of an effective contract management strategy to help you understand if your current system is up to scratch (and how to tweak it if not).
What does effective contract management mean?
Effective contract management provides complete visibility into the company’s processes. This way, your contracts are quickly examined, and you can pick up all inefficiencies. It ensures easy collaboration and compliance with contractual obligations and regulations.
Here are the main components your contract management flow should include:
- Secure access lets authorized users to view contracts and any accompanying documentation
- Workflow management allows you to send alerts and inform parties to take action, so you move contracts faster
- Version control lets you manage different versions of drafts and ensure that everyone is working on the same page
- Automation frees your legal department from repetitive tasks and lets them focus on meaningful work
- Lifecycle alerts let you perform timely actions and ensure you never miss expiration or auto-renewal dates
- Template management helps you draft documents faster and avoid mistakes in final versions (an issue when reusing older contracts)
- Analytics let you get insights into the company’s performance and see if your workflows align with benchmarks
If you’ve got these down, the chances are that you have an effective contract management process in place. But if you feel your CLM has gaps, applying specific contract management strategies can help.
Strategy 1. Creating a single source of truth
A single source of truth (SSOT) means that everyone in your organization should base business decisions on the same data. For CLM, this means having readily accessible information about agreements.
Your contracts constantly move through lifecycle stages, requiring amendments, renewal, or stakeholder responses. Creating a single centralized contract documents repository can help you:
- Proactively respond to potential risks
- Quickly find critical information like key clauses or dates
- Effectively communicate with the stakeholders and parties involved
- Provide data security and make informed business decisions
Here are five main steps to help you put this strategy in place.
Use contract repository software
Keeping all your documents in a single centralized repository improves business visibility. These two aspects are crucial for managing contracts and extracting value from their information.
You can retrieve information using digital contract management and reduce staff workload. The software automatically organizes most data, requiring less care than conventional approaches. The most significant advantage is saving dozens of administration hours. Also, it makes your portfolio more accessible to the appropriate parties, whatever their location or time zone.
Storing your contracts in one location is the first of many steps you’ll need to take when creating an SSOT. The next is to apply categorization. It means that you tag contracts according to the information they contain to make it easy to cross-search.
Any document characteristic can become the basis for categorization and help you bring order to your portfolio. This can be its type, value, usage level, status, responsibility, or risk level.
Standardize contract document naming
Standardizing document naming conventions will help your contracts easier to locate. For example:
Contracts > Spencer Co. > Services > Development > MSA 01/2022.pdf
To induce document self-identification, your organization may agree on common word abbreviation standards, date formats, etc. The proper naming will make it pretty clear what the document is about without opening it. A little lifehack — don’t pack too much information into a document name, and don’t overuse abbreviations.
Capture contract data
This step can help you facilitate contract management and achieve better data consistency. First, you need to think about what data you want to capture. This can be, but is not limited to:
- Start date, term, governing law, or any other data extracted from the contract
- Characteristic or status indicator, like (in)active, the currency used, etc.
- Labels like value, risk rating, etc.
It will give you more precise search results. To accurately capture contract data, you can use the following techniques:
- Create standards for coding your data to prevent duplication and confusion
- Apply official or common usage abbreviations
- Use shorthand codes instead of verbose descriptive text
If you rename old contracts according to the standards and then ensure all new documents follow agreed rules, you’ll be able to benefit from any automated CLM system.
Set up access permissions
Keeping your contacts in a centralized location provides improved accessibility. Yet, it also raises the chances of accidental data leakage. To secure your contract data privacy and guarantee compliance with government regulations, you need to:
- Identify access permissions and assign appropriate access rights
- Limit access to all confidential information on a need-to-know basis
- Restrict access and the ability to edit, delete or share data
- Log every entry and change made to confidential data
- Periodically check the relevance of access rights
The access permissions system can save your business from undesirable or unrecoverable consequences. It also protects contract-related data from being altered or deleted without authorization.
Strategy 2. Developing responsibility among people and teams for contract outcomes
Overseeing your contracts is a must to make them flawlessly move from one stage to another and drive the best possible outcomes. Yet, companies often underestimate the importance of constant contract oversight and take a “set it and forget it” approach.
Here are three steps to help you make your team responsible for contract outcomes.
Encourage employee accountability
Assigning contract ownership can help you quickly find who handles a specific contract or some of its obligations. It helps cut stress in critical situations and indicates who to turn to for advice or guidance about a particular document.
The contract owner handles price updates, reporting, conditions, and issues resolving (if any occur). They can also be responsible for checking compliance with contractual or regulatory obligations. The last is a complex task and may require several team members to own those assigned obligations officially.
Use a contract events calendar
Contracts need constant oversight, review of conditions, maintenance, or an occasional check. And if your company operates hundreds of them, a contract events calendar is a must. It will help you eliminate unwanted renewals, missed obligations, and opportunities.
CLM software like AXDRAFT can lighten the burden and inform you in advance if you need to perform any tasks. This, in turn, helps you prevent automatic termination or renewal and, in general, improves contract outcomes.
Empower your CLM flow with templates and clause libraries
Composing drafts, making amendments, and redlining may consume your lawyers’ time. Creating clause libraries and templates that your team might use in different contracts can help your company better prepare for contract negotiations.
The main task of clause libraries is to provide guidance and accelerate a contract negotiation process by having upfront, ready-to-use options for versatile cases. They give your legal team more independence and minimize the need to continually ask company executives for the next move. As a result, teams can eliminate mistakes and process documents eight times faster.
Strategy 3. Aligning processes, policies, and people
Your contracts can deliver the most value only when your processes, policies, and departments seamlessly engage with each other and stakeholders. This contract management strategy comprises four steps to enhance collaboration within your organization.
Define your CLM policies
These policies form the baseline for creating terms and conditions in a contract. Designing and defining commercial or employee agreement policies is necessary for building solid processes and ensuring smooth cooperation.
Yet, properly defining your policies isn’t enough. You must ensure that your team knows them and that all inbound and outbound contracts comply. The best way to do that is to upload the policies document to your CLM software so your team can refer to it as needed.
Prioritize key contracts
Not all contracts bring your organization similar value. Defining the key ones starts by measuring their outcomes. But business is always in a state of flux. To account for changing conditions, you may need to adjust the criteria and cutoff points used to define relevance over time.
This step will help you identify contracts that eat up more resources than the value they bring. So you can distribute the load within your legal department reasonably.
Identify process optimization opportunities
No matter how balanced your current process is, you should always seek opportunities to make it even more efficient. To do that, periodically analyze it and cut on the steps that don’t bring any value. Tracking performance metrics, like contract review time, workload per lawyer, cost per matter, and other KPIs can help you:
- Understand how well your teams perform
- Find bottlenecks
- Outline areas for improvement
Your company’s legal processes often involve multiple departments, like procurement, sales, or IT. It’s necessary to identify each department’s needs and ensure your processes properly address those needs. CLM automation can help you minimize manual efforts and overall processing time while staying convenient for all departments.
They say teamwork makes the dream work. To make this whole contract management strategy work, you need to regularly:
- Run user satisfaction surveys
- Initiate internal polls on how to optimize the current working process
- Arrange meetings with suppliers to assess their experience with your system
Your company’s contract management will go more smoothly if everyone knows:
- The objectives they should aim for
- The contracts they should prioritize
- How to handle their tasks efficiently
It’s not a one-time action. Do it regularly to make your team work like a clock.
Contract management strategies are essential to building an effective CLM process. Depending on your organization’s CLM maturity level, some of these strategies may already be in place. Still, they might need a little tweaking. Other methods may be too advanced or irrelevant at this time.
Establishing an SSOT helps your company gain more control over its portfolio and secure the data it holds. Your business will always be in the lead to improve contract outcomes if you assign ownership to the proper teams. But also don’t forget to give them the resources they require. Aligning your policies, processes, and people can help you identify the strengths and weaknesses in your contract management strategy and find ways to improve it.
A dedicated CLM solution like AXDRAFT can help you implement all these contract management strategies, optimize processes, and gain maximum value from your contracts. Try our free demo and see how AXDRAFT’s CLM software can boost your team performance and build an effective contract management process.