Contract management is the process of managing contract creation, execution and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and improve company performance. Contract management proves to be a very time-consuming element of business, which facilitates the need for an effective and automated contract management system.
When two companies wish to do business with each other, a contract specifies the terms of their agreement and which aspects each party must fulfill. These agreements hold all parties legally accountable to one another. Contract management also applies to managing different contracts with freelancers or employees.
The trouble is that contracts are filled with legalese and difficult-to-parse phrasing, making it more the domain of lawyers than entrepreneurs. That is where contract managers come in, helping to sort through the documents required and ensure agreements are airtight.
The benefits of outsourcing this activity to a contract manager is that entrepreneurs can focus on actually running their business rather than keeping the paperwork sorted.
While there are many components of contract management, the process can be broken down into five stages: creation, collaboration, signing, tracking and renewal. Each stage contains important steps to ensure adequate contract management, from creation to approval to, eventually, renewal.
Initial requests: The contract management process begins by identifying contracts and pertinent documents to support the contract’s purpose.
Authoring contracts: Writing a contract by hand is a time-consuming activity, but through the use of automated contract management systems, the process can become quite streamlined.
Negotiating the contract: After drafting the contract, employees should be able to compare versions of the contract and note any discrepancies to reduce negotiation time. [Read related article: Before You Sign: Important Loan Contract Terms to Review]
Approving the contract: Getting management approval is the step where most bottlenecks occur. Users can preemptively combat this by creating tailored approval workflows, including parallel and serial approvals, to keep decisions moving at a rapid pace.
Execution of the contract: Executing the contract allows users to control and shorten the signature process through the use of electronic signatures and fax support.
Obligation management: This requires a great deal of project management to ensure deliverables are being met by key stakeholders and the value of the contract isn’t deteriorating throughout its early phases of growth.
Revisions and amendments: Gathering all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.
Auditing and reporting: Contract management does not mean drafting a contract and then pushing it into the filing cabinet without another thought. Contract audits are important in determining both organizations’ compliance with the terms of the agreement and any problems that might arise.
Renewing: Manual contract management methods can often result in missed renewal opportunities and lost business revenue. Automating the process allows an organization to identify renewal opportunities and create new contracts.
Contract lifecycle management is critical. As different contract types go through their various stages, contract managers need to be on the lookout for any changes or breaches.
Vendor performance and risk management are important considerations during the management of contracts. For example, if a vendor fails to meet its contractual obligations, you may need to rework the contract or enforce some disciplinary measure.
If an employee or business is unhappy with its contract, it might be worth making alterations to the contract. It’s important to follow contractual obligations while also making sure both sides of the contract are happy.
Contract management software is an electronic approach to solving these problems. Contract management software suites can organize all contract paperwork. The software can put signing and renewing on an electronic calendar that is easy to manage, and it can help you track and allocate resources related to the contract management process.
Integration with an automated contract management service can free up countless hours and automate the processes associated with managing a contract, thus creating more value for a company.
“Contract management software stores key information about contracts relating to providers, commercial leases and licensing agreements,” said Robert Powell, CEO and founder of the Rob Powell Biz Blog. “The overall purpose of contract management software is to streamline administrative tasks by creating a centralized and uniform record for each contract’s processes.”
Using contract management software can make it easier to monitor complex contracts without relying solely on paperwork.
“The most important aspect of contract management software is that it allows employees in multiple locations to access contracts in one place,” Powell said.
This software will primarily see use in departments that directly deal with creating, tracking and signing contracts. This is often offloaded to the HR department, which manages the vein of employment accounting. The software can also involve managers who need to complete vital processes. Since it can integrate with calendars and communication software, HR can use the heavy-lifting components of the software suite, while the rest helps to loop in managers and personnel who are needed for specific aspects of signing or negotiation.
Not all universities offer a degree in contract management, but some schools do. Getting that education is one option, but there are other business degrees that position you for success in the industry. From there, you want to add contract management experience in some form.
“With a bachelor’s degree and a few years of experience in the field, you can apply and test for certification through the NCMA [National Contract Management Association],” said Jared Weitz, founder and CEO of United Capital Source. “Along with education and credentials, a contract manager needs to have solid communication and writing skills and a keen eye for organization and deadline management.”
A law degree can also be beneficial to this career path. Legal knowledge is critical in managing contracts. Contract management and negotiation both rely on legal knowledge and expertise.
If you want to become a full-time contract manager, it’s a good idea to connect with other contract managers to learn how they arrived at their current role. There’s no one set way to become a contract manager, but business experience is important when becoming a contract manager.
Estimates for a contract manager’s annual salary range between $75,000 and $150,000 annually. Salaries are affected by conditions like geographic location and experience level.
Contract managers can also work their way up to a senior contract manager, contract director or contract administrator. These roles generally include higher salaries.
Contract managers help manage the legal and financial aspects of contracts with businesses or employees. For companies that make frequent contractual agreements, hiring a contract manager can be a good idea. Most small businesses aren’t likely to need a contract manager, but if you find that you’re falling behind on paperwork and failing to formalize agreements, it may be right for you.
Jacob Bierer-Nielsen and Ryan Goodrich contributed to this article. Some source interviews were conducted for a previous version of this article.