There’s no debating the fact that efficient contract management can and does drive profits and plug revenue leaks. Well-managed contracts have a positive impact on the business, not only in terms of minimizing expenses and increasing profitability, but also in forecasting and mitigating risks, and improving relationships.

While contracts have the potential to deliver these to businesses, they do not always show through. That is because organizations forget that handling contracts are as important as having them in the first place. If what is written in the contract is important, how you manage that contract holds equal value as well.

Here are six best practices in contract management adopted across industries and sectors for best results.

Standardization

The biggest roadblock to effective contract management is the serpentine approval workflow. Globalization and ubiquitous digitization require the integration of diverse languages, regulations, workflows, and more. This has made contemporary contracts complex. The slightest oversight or error in drafting is a potential loophole that can have great repercussions for the business.

One solution to this is a centralized contract repository containing standardized clauses that would appear in every contract as well as standardized templates for repetitive contracts. Approvers can then focus on specific clauses thus reducing the approval time significantly.

Automation

Business contracts frequently have multiple owners and stakeholders such as legal, sales, finance, production, procurement, and marketing teams, and even CXOs or the C-Suite. Approval is required from all stakeholders to execute a contract. Further, the stakeholders often work in silos and may have conflicting requirements. This makes automation difficult.

Businesses around the world are leveraging emerging technologies to resolve this. AI for instance can mine voluminous data quickly. Over time, ML can help resolve possible misinterpretations, language differences, and other ambiguities, thus reducing the probability of errors and oversight. The differences in date formats and currencies are already being overcome. Delegation and the use of digital signatures can further speed up the process of contract approval.

Monitoring and Tracking

Monitoring and tracking are the next steps. The biggest challenge here is identifying performance metrics given the complexity, multiple ownership, and wide scope of contracts. Apart from quantitative metrics, it is also important to track value.

Value for most organizations comprises productivity, innovation, risk mitigation, speedy resolution of business problems, consumer loyalty, and strong vendor relationships. Every element of value must be translated into a measurable KPI and monitored.

Some common KPIs include time to approval, time to delivery, product quality, renewal time, number of renewals, and so on.

Identifying and Plugging Risks

All risks are not financial. Some risks may be non-fiscal, subjective, and hard to measure, yet severely detrimental to the business. For instance, delay, defect, or inadequacy of supply, can potentially disrupt the supply chain right up to the end-user thus eroding revenue and damaging brand image. On another front, non-compliance with regulations such as GDPR (General Data Protection Regulation) or GST (General Sales Tax) can have cascading repercussions on brand image and goodwill apart from considerable financial loss.

Businesses are leveraging technologies like AI, ML, and RFID to alert them of such potential risks so that they can take prompt action.

Access and Security

Contracts are confidential documents. The more people with access, the higher the risk. On the other hand, all the owners and stakeholders – both internal and external – need easy access.

Businesses are exploring different modules of access including selective role-based access. This means access is granted to selective elements in a collective repository based on the individual’s role and need. Of course, this will depend on the specific needs of the business, the organizational structure, and a few other factors.

Compliance Reviews

With ubiquitous digitization and globalization, the regulations for the storage and disbursement of data are evolving. Existing rules like HIPPA (Health Insurance Portability and Accountability Act) are being modified while new rules like PDP (Personal Data Protection) are being introduced. Identifying, automating, and tracking these requirements is an ongoing process that can be challenging. Non-adherence can cost the business heavily. For instance, violating HIPPA can cost a healthcare facility up to USD 50,000 in penalties alone – not to mention the incidental loss of brand image and its impact on revenue.

One solution to this challenge is integrating automated compliance into your CLM.

Even as digitization and globalization disrupt the business environment, businesses are adopting CLM solutions and automation to streamline their contract management processes. As the use of an automated CLM solution increases, new practices are evolving.