What is Contract Management and Why is It Important?

Contracts govern almost every interaction between businesses. 

Let that one sit. 

Think of all the different ways that your business interacts with other people and organizations. The people who buy your solution, the employees that work for you, and the company that provides your business with office supplies.

Every single one of those relationships is initiated with the execution of a contract. 

That’s a heck of a lot of contracts, and keeping track of every single one is crucial when avoiding legal trouble - this is where contract management software comes to the rescue. Basically, if you are running any type of organization, you’re going to need some sort of an effective contract management system.

Companies rely heavily on the terms and conditions within contracts to conduct normal business activities – a big one being generating and collecting revenue from customers.

When a contract is created, executed, or managed poorly, an organization can miss out on expected benefits due to technicalities and poor compliance. Needless to say, keeping a close eye on your business’ contractual obligations is necessary for growth. 

Having a separate legal department within your organization is definitely a plus, but all of your employees need to be familiar with the life cycle of all contracts running through the veins of your business. 

Key components of contract management 

• Contract Creation: Drafting clear, comprehensive, and legally sound contracts.
• Negotiation: Negotiating favorable terms and conditions with counterparties.
• Execution: Ensuring timely and proper execution of contracts.
• Monitoring and Compliance: Tracking contract performance, ensuring compliance with terms, and addressing any issues.
• Renewal and Amendments: Managing contract renewals and amendments as needed.
• Dispute Resolution: Handling disputes and resolving conflicts effectively.

Stages of contract management

If you’re starting a new contract management system for your business from scratch, good for you. Clean slates are good for the soul. If not, you might have a lot more work ahead of you. Either way, below are the six stages of contract management that every business must undergo at one point or another. 

Remember, the law is one thing you do not want to mess with, so it’s worth putting in the time.

Planning

Any new business process requires planning before implementation. The management of contracts is no different. So if this makes sense, the first step in the contract management process is to plan the process itself. 

The contract management planning phase is all about thinking ahead so you don’t have to backtrack later on. Brainstorm any and all on-hand resources, other things you need to be successful, and key stakeholders. Determine a way to keep everything streamlined and organized throughout the entire contract process. 

Because your business will end up dealing with a variety of agreements, your contract management strategy is going to have to be flexible. You might have to implement processes for each different kind of contract. If you think that will be the case, plan ahead. 

Auditing

Before building a path to the future, you’re going to have to revisit the past. 

Part of determining your current problems with managing your contracts lies in examining your current situation with an audit. Investigate every detail of how your business handles contracts, agreements, and other legal documents from creation to execution to management. 

If you find some issues with how you are complying with the requirements of the terms and conditions within the contract, make note of what the problem is, why your business might be experiencing it, and possible solutions you can implement to avoid it in the future. 

At this point in the process, you’ll be conducting this audit at a macro-level, meaning you’ll examine a large quantity of contracts. However, as you move forward with your contract management process, you’ll have to do it at a micro-level.

Don’t let the audit stop once you’ve finished creating your contract management process. Keep it going by investigating every contract you execute from that point forward.

Building a framework 

After your planning and audit, you’ll have a better understanding of what your business’ particular contract management process will need to look like to be successful. 

Now is the time to build a structured framework for your business to use as they handle existing and future contracts. This plan should lay out every element of managing a contract, as well as associated actions and requirements for each stage it reaches. Make it clear which department handles which stages in the process, resources that’ll be used, and metrics for measuring success. 

Even if this isn’t your first time building a contract management process, expect feedback. Don’t only receive it, but take it seriously. If your strategy isn’t working for everyone within your organization, it’s worth the extra effort to find a way to fix that. 

Finding the right technology

Let’s clear one thing up before moving on. Jamming a bunch of paper contracts into an old filing cabinet is not contract management. It’s a mess. 

To properly manage your contracts, you need the right technology to do so. No matter how organized your team is, it’s always best to make everything electronic where you can. This way, everything is in the same place and accessible wherever you can connect to your server. 

Implementing new contracts

Now that you have your new process in place, you can implement it for new contracts. Besides their management, the actual agreements can get a bit complicated as well.

Let’s quickly go over what the process can look like for each individual contract your business enters. 

1. Requests 

The process begins with a request for a contract after closing a deal with a customer, vendor, employee, or whoever you are creating an agreement with.

During this phase, make sure you understand the business relationship, the needs of each party, and the goal of the agreement. Get contract approval from every key stakeholder before moving forward. 

2. Creation 

Then you will have to draft the actual contract. Make sure to include all key elements that a contract must include to be legally binding.

As a starting point, include all of the information that came from the request for a contract and keep in mind that it’s subject to change during negotiations. When writing the contract, make sure to use consistent language and have a section describing the included terms.

3. Negotiation

Once you give the other party the deliverable, there will likely be some negotiations. During the negotiation, make sure every stakeholder has a draft of the contract, gather feedback, and renegotiate the terms and conditions until you reach a final agreement between both parties. 

4.  Approval

With the new draft of the negotiated contract, you need to get final approvals on the terms and conditions. Get the OK from all stakeholders, and remember that them viewing the contract might bring up some more changes that you’ll need to make.

If this is the case, run it by the other party. Establish a formal, streamlined, and repeatable approval process to ensure efficiency and consistency for contract management across the whole organization. 

5. Execution 

Executing the contract often refers to signing it. At that point, the terms, conditions, and obligations officially become legal and go into effect. This is why it’s so important to have a thorough approval process. Once a contract is executed, make sure to update your contract management solution with the details. 

6. Compliance

At this point, you are legally obligated to hold up your end of the deal. To avoid breaching the contract, ensure you remain compliant with all of the terms and conditions listed.

This might include making a payment or completing an action by a certain time. Make sure every person involved knows what compliance looks like and keep an eye out for any misaligned behavior. 

7. Termination or contract renewal 

At the time of expiration, determine if your business should renew or terminate the contract by evaluating whether or not you got your desired results. If not, consider another renegotiation or let it terminate as scheduled. 

All of the actions listed above are a part of not only creating and executing contracts, but managing them as well. Throughout each stage, make sure that every piece of contract information is organized, streamlined, and kept secure. Once you sign a contract, you are bound to its expectations, so proper management techniques always need to be at top of mind. 

Contract management and sales

Customer contract management is the lifeblood of your sales team. A closed deal isn’t officially set in stone until someone signs on the dotted line. Consequently, contract management has become an integral part of the sales cycle.

If a business can properly manage its contracts, it can help them further streamline their sales processes. This is especially the case when it comes to managing customer relationships.

While the relationship might have started long before, the second they agree to your deal is when that connection shifts from them being an opportunity to a customer whose loyalty you should be pining to earn. 

If you have an efficient and repeatable contracting process that includes pre-approved contract templates, holding up your end of the deal with the customer should be made a bit easier. That way, sales reps can focus more on nurturing that customer relationship instead of drawing up draft after draft of essentially the same contract. 

If you take it a step further and digitize all of your contracts, there can be an easily accessible, single source of truth for anyone within your organization. 

Contract management best practices

Accurately going through each stage of the contract management process is only half the battle. To make all of that hard work worth it, there are some additional contract management best practices you should implement to ensure full efficiency and effectiveness. 

Focus on compliance

If you can’t comply with your contracts, none of your management stages were worth it. The theme of your contract management strategy should be compliance. The beauty of contract management is that its structure makes it easy to improve your compliance with legal agreements.

On top of that, monitor all federal and state regulations that can affect your business to avoid any penalties for non-compliance. If something of note happens, review all of your contracts and take action where necessary. 

Stay organized

The secondary theme of your contract management strategy should be organization. One of the most important practices here is to make sure you are keeping all of your contracts in the same place. Tracking, updating, and reviewing are all a part of effective management, and being consistent with placement is necessary for that to happen efficiently. 

On that note, while people who need to access contracts should be able to do so, there also needs to be a balance of security. Only give access to those who truly need it. Contracts can include some sensitive information, and the more people that can see it, the riskier it gets. 

Track your approval time

All of your agreements should be offering your business some sort of value, but you won’t be able to reap those benefits before the contract gets approved and signed.

To ensure you’re accessing that value, set and monitor some contract management key performance indicators (KPIs). Monitor how long it takes for a contract to reach the approval stage so you can identify ways to optimize the contract management process as a whole. The best way to ensure efficiency in your process is by learning from your mistakes. 

Automate where you can

Legal teams and sales reps no longer have to take care of every single detail regarding contracts. There are plenty of mundane tasks throughout the process that you can leave to automation, especially when it comes to communication between the parties. Contract management software enables users to schedule and send alerts and notifications when action is needed on their behalf. 

Anticipate changing business needs

While your business will likely end up relying on reusable contract templates for your standard legal needs, don’t let yourself get too comfortable.

As your business changes, whether it be with a new solution, target audience, or employee standards, your contracts will have to adapt as well. Do your best to be proactive and anticipate your changing business needs so you can adjust your contracts accordingly. 

Benefits of using contract management software

Building a contract management system is going to look different from business to business. However, at the end of the day, no team can be truly successful in managing their contracts without the right solution. 

Contract management software removes harmful inefficiencies that burden those keeping track of your legal documents manually. Bottom line, no matter which specific product you choose, here are some of the associated benefits of implementing a contract management solution. 

Provides a single source of truth

Because all of your legal documents will be stored in the tool you choose, contract management software acts as a single source of truth for your organization. Every authenticated user will know exactly where to look for the details, life cycle, and requirements of each contract.

This central location of your contracts also avoids users looking at outdated versions of current documents. 

Improved visibility and insight

Keeping all of your contracts within a software can also help you gather valuable insights into how well, or poorly, your business handles its legal documents and their associated obligations. Contract management software can give you a bird’s eye view of all your deals and help extrapolate helpful data that will open avenues for process optimization. 

Saves time

Letting a software tool handle all of your contract management tasks is a huge time saver. The automation that contract management software provides opens up time for team members to focus on more important tasks that require their attention.

The fact that everything is online makes contracts easy to find and search within, removing the need to skim contracts and files for specifics. Most tools even let you set up alerts so you know when action needs to be taken on your end. And with electronic signature integrations, sealing the deal is easier and faster than ever. 

Reduces risk

Arguably the most important benefit of contract management software, which stems from the others listed above, is that it reduces the risk of non-compliance, losing money, and soiling important relationships.

Getting into legal trouble is nothing to mess with, and contract management software is the best way to combat that. It makes it almost impossible to miss a deadline, provides all stakeholders with valuable insight, and analyzes contract cycles to pick out weak spots. 

Best contract management software

There are a few different tools you can use to oversee and automate your contract processes, but the best place to start is with contract management software. 

To qualify to be included in the contract management category, a product must:

• Offer customizable templates involved in the creation of business contracts
• Include a repository of documents that can be stored in different categories 
• Have the ability to create, edit, share, and collaborate on contracts with other employees (internally), and with customers or partners (externally)
• Comply with legal requirements as well as business rules
• Allow users to send notifications for milestones such as expiry date or renewal

*Below are the top five leading contract management software solutions from G2’s Fall 2024 Grid® Report. Some reviews may be edited for clarity.

1. PandaDoc

PandaDoc is a tool used by sales teams to improve the workflows associated with the contract side of closing deals. This software focuses on document automation and streamlining the process of creating, approving, signing, and executing contracts. 

What users like best:

"I use PandaDoc to obtain sign-off during project delivery. Having the ability to have multiple templated documents that I can send out to clients at the push of a few buttons is valuable. It's taken what was once an email to something more formal, thorough and professional. This is something that I use every week, sometimes more often. It's really easy to set up templates and add these to your library for recurring use."

- PandaDoc Review, Jake B.  

What users dislike: 

"No proper tech support, no email updates when there's an outage or technical issue, no automatic response when there's a glitch with a customer's ID verification that can be answered on the spot during a session. No editing feature once completed if a signature or stamp was missed. No ability to edit tags without clearing out all progress and signatures."

- PandaDoc Review, Ashley R. 

2. DocuSign CLM

DocuSign CLM is a comprehensive CLM platform that streamlines and automates the entire contract process, from creation and negotiation to execution and management. It empowers businesses to manage contracts more efficiently, reduce risk, and improve collaboration.

What users like best: 

"I found the automation to be the most helpful. I don't have to manually do the same process client to client with the rules that are able to be configured within Docusign you simply do less while the system does more automatically."

- DocuSign CLM Review, Nelson G.

What users dislike: 

"Sometimes it can be hard to navigate through the entire document to date initial and then finally sign a document at the end. If you skip some thing it's hard to get back to where the skip was at. Sometimes some general easily fixable sizing issues when it comes to the fonts but all in all a good product."

- DocuSign CLM Review, Brain G. 

3. Jotform Sign

Jotform Sign is a user-friendly electronic signature solution that simplifies the process of collecting signatures for contracts, forms, and documents. It offers a drag-and-drop interface for easy form creation, allowing you to add signature fields, text boxes, checkboxes, and other elements as needed.

What users like best: 

"Jot From is easy to use and robust. Getting started with creating a new form and implementing it is super easy and intuitive.

It is easy to use for both end users, for the user creating the form and the user that will fill out the form. Our target audience is mechanics who are not always technically inclined, and they have used the forms with ease."

- JotForm Review,Ryan H. 

What users dislike: 

"Sometimes my audience tells me the paypal integration and other pay features glitched on them, especially when they're using a Mac." 

- JotForm Review, Alex S. 

4. GetAccept

GetAccept can be used by a variety of departments, including sales, human resources, customer success, and sales enablement. This platform provides video messaging, document tracking and analytics, and e-signature capabilities. 

What users like best: 

"It´s very flexibel, easy to use and easy to learn, supports the documents we use inhouse, great support and you are very engaged to make it work within our business, it helps us to be creative and you have wide experience from different businesses that helps us to improve ours."

- GetAccept Review, Stefan L. 

What users dislike: 

“Sometimes it's a bit messy to recreate or change a proposal if you need to send a new one. It works, but it could be easier. We often have to change the PDF file we send over to our customers, since we don’t use the built in templates.”

- GetAccept Review, Jesper J. 

5. LinkSquares

LinkSquares is a comprehensive contract management platform designed to streamline and automate the entire contract lifecycle. It offers advanced features for contract analysis, risk mitigation, and collaboration, making it a powerful tool for businesses of all sizes.

What users like best:

"LinkSquares CLM is highly customizable (i.e., not one size fits all) and they provide hands on support to make sure that it is implemented correctly and setup for success. It is also much more intuitive than other CLMs we considered."

- LinkSquares Review, Cameron W.

What users dislike: 

“There are some further product enhancements that are necessary to automate processes more and to remove some manual work necessary on the admin side." Richele B.

- LinkSquares Review, Richele B. 

This time, don’t do it yourself

Letting technology manage your contracts isn’t lazy. It’s smart, and at this point, it’s almost necessary. There are too many day-to-day worries of operating a business, and dealing with legal documents shouldn’t be one of them. While there are some parts of contract management that require a human touch (in-person or online), taking advantage of software will bring it all together. 

Managing contracts online opens up the world of e-signatures, which is surprisingly secure. Learn more about the difference e-signatures can make for your business.

This article was originally published in 2020. It has been updated with new information.