What is Contract Management?
Contract management is the ability to find pertinent details of any contract in the supply chain of an operation, and then use those contract details in a meaningful way. Being aware of all the pertinent details of all contracts is imperative. Memorizing all contracts is improbable, especially when a company has hundreds of contracts. Furthermore, not every person can memorize the exact same configuration of contract content as another person. As more people are involved in the contract process, the need for efficient contract management grows.
Finding any contract detail in the stored files of contracts within seconds is improbable unless a computer system is used. Computer systems that manage contracts are known as contract management systems (CMS) or contract management software solutions.
Why Use a Contract Management System?
The main reason to use a CMS is profit. Dun & Bradstreet reports that 64% of the average sales rep’s time is spent on non-selling activities. Profit comes from increasing revenue or decreasing costs. Revenue, costs, and profit are derived from sales. Sales teams that spend their time efficiently produce more profit for their company than sales teams that waste time. Time wasted on searching for pertinent details of a contract managed manually can be eliminated by using a CMS. The entire sales team of an organization should have access to a contract management system.
Contracts are agreements between two or more parties. Often during a contract creation, negotiations are done from each party. Even when parties on both the selling and buying side of a transaction agree, time is spent to process the contract. For example, in a house purchase, the buying price is agreed first. Then, an appraisal is done to confirm the buying price is worthy. Also, a title search is performed to verify that the seller owns the house and has the right to sell the house, without any liens that supersede a mortgage, and without shared ownership with other parties. Also, mortgage balances are verified, insurance is verified, and warranties are made. All of these are tasks that must be done during a contract. This may be why Houselogic.com states that the average time it takes to close on a home is 50 days. Each task takes time. Each delay must be documented. If using a CMS, all the documentation during the contract workflow processes is stored for reference by all parties.
Who Uses a Contract Management System?
Dun & Bradstreet also reports that an average of seven decision makers are involved in every sales deal. This means that all seven decision makers will interact with the CMS during the contract workflow. This means that seven people will need to learn the pertinent details of the contract, as well as stay abreast of other contracts in their individual and team pipelines. It is possible for each person to review details of thirty different contracts on the same day. Relying on memory is dangerous, as mistakes can cost tens of thousands of dollars.
A CMS is used by all decision makers in a contract, as well as some support staff. Support staff consists of people that request a contract to be created, legal counsel and their team that create original contracts, sales team managers, c-suite executives, and more.
Real World Case Study
Usaspending.gov reports that the U.S. Government has spent $2.56 trillion in response to Covid-19. Pharmaceutical companies used contracts with the U.S. Government to secure financial backing for Covid vaccination research, testing, deployment. Pharmaceutical companies used contracts in their supply chain to source materials, test results, transport dosages, and more. Every step of the process incurred contracts. A CMS was used by each organization. Saving time saves lives.
Logistics companies use contracts with employees and independent contractors who drive trucks to deliver vaccines. Again, a CMS was used. Frankly, contract management systems are used because they are full of features that every organization needs to thrive.
Key Contract Management System Features
Contract management software solutions make it easy for users to see snapshot overviews of contracts in various groups or categories. For example, a CMS will give users the number of contracts which have deadlines approaching in the next 30, 60 or 90 days. A popular CMS statistic viewed daily is the list of contract tasks due today, or due in the next seven days, or due in the next month. Another CMS feature is to customize workflows so that the contract status will change automatically when specific stages are completed (i.e., a contract will change to “send for signatures” after a contract has been approved by all parties).
Another set of features that help contract management software users to spend less time using CMS and more time selling (for sales teams) is automated alerts. Alerts are automated communication between parties. They occur when an event occurs, such as a date or a workflow stage is completed, or a contract status changes. For example, all parties receive an email notification when a contract expiry date is thirty days away. This saves time for parties regardless of whether they are on the buying side or the selling side of the transaction. Communications between parties is helped with CMS alerts, instead of time spent on the phone to touch base.
Redlining and Documents Shared
Contract management systems operate on the cloud, as a SaaS (Software as a Service). Cloud storage is convenient to all seven decision makers, on average, who take part in a contract. Instead of downloading and then printing a paper contract each time an edit or a negotiation component is addressed, and then re-uploading the document back into the CMS, cloud storage allows remote documentation edits. These edits are saved momentarily after each change to a document. Furthermore, cloud storage allows simultaneous edits by two or more people at the same time. Every edit is saved, and every edit can be seen by other simultaneous users instantly.
Contract management demand is ever-growing. Companies are using contract management systems to manage operational necessities of their organization beyond contracts with vendors and customers. Using a CMS is a time-saver, life-saver, and profit-driver.
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