What is contract tracking?
In its simplest form, contract tracking is the process of managing agreements from their creation all the way through to their execution and eventual termination. Stakeholders should be able to know where a contract is in its lifecycle without too much hassle.
There are many types of contracts along with why they may have been created, but without being able to effectively track where they are, it can be very difficult to figure out at what stage that contract is or where it is even located at times.
There are six main stages that contracts go through during their contract lifecycle. Here are those stages:
- Creation - This is when the agreement is created by requesting a new contract to be drafted or to have a review of an already existing contract.
- Collaboration - This is when the contract can start being drafted internally, which involves gathering the right information and documents.
- Negotiation - This stage is when the contract can be shared with the other party and the process of redlining or reviewing them can begin.
- Signing - Once both parties have agreed to the terms of the contract, the contracts can finally be sent off for them to sign.
- Tracking - This is where contracts are monitored often through analytics.
- Renewal - The contract may have an auto-renewal clause to monitor as well.
It is ideal to have transparency across all six stages to ensure that contracts are moving along which will aid in the rapid growth and success of any business. It is crucial to know how far a prospect has gone in negotiation for example, or what contracts are still waiting to get approved.
What is contract tracking software?
Traditionally, contracts used to be managed manually through folders and filing cabinets in physical storage space. However, this manual method has proved time and time again how ineffective and inefficient it can be.
With today’s technology, there is plenty of contract management software on the market that is able to offer a better approach to contract tracking, as well as contract management as a whole. Switching to an electronic solution can help free up your employee’s time as most processes will be automated too.
Here are just a few features that are included:
- Approval workflows - Having a central web dashboard for submitting and tracking contracts means requests are received in a matter of hours, down from days or even weeks.
- Timelines (users can see every interaction with the contract) - Timelines make it easier to track where a contract is in its contract lifecycle and can bring attention to any obligations that need attending to.
- Mentions - Easily and directly communicate with those that are involved in each part of the contract without having to use multiple platforms.
- Renewal reminders - Instead of relying on individual employees to manually track renewal dates and contract terms, users can receive automated reminders.
- Slack integration - Quickly find, share, and act on information across by having one central place to stay focused and get work done.
We’ll take you through a few other benefits contract tracking has to offer.
Why is contract management necessary?
Regardless of which industry your business is in, one aspect that is critical to the success of your business is contracts, and with that, contract management. Contracts are the backbone of any business relationship and hold high importance because of that.
Here are a few reasons why proper contract management is not only necessary but crucial to your business’s survival.
- Relationship management
Communication throughout the process of contract management is an essential part of establishing a working relationship with each party, whether they are suppliers, stakeholders, or business owners.
When done right, proper contract management opens up the potential to improve and innovate while securing knowledge amongst one another that will ultimately benefit both parties. It facilitates clear, open, and honest communication, respect and understanding, and joint problem-solving as well as collaboration.
- Service delivery management
When contracts are constantly sent back and forth, the negotiation process can become very lengthy and can lead to a significant decrease in productivity and therefore a huge loss of profits.
Good contract management will ensure that products and services are delivered on time and of quality. It involves risk management which takes a look at any potential risks during the contract, as well as performance management that ensures quality and quantity, appropriate resource utilisation, and improvements.
- Easy improvements in efficiency
Contract management supports strategic decision-making as you can easily see the areas for growth. Amendments and alterations can be pursued within a procurement environment in order to improve efficiencies and generate an increase in profits.
- Change management
Change management is the process of renegotiating and enforcing commercial adjustments to a contract. Ideally, these adjustments are made and negotiated as changes occur.
From a management standpoint, being able to both track and manage change brings significant strategic value for two reasons. First, tracking changes helps you control any rising costs as a result of continued rework. Second, it protects your business from any potential damage to your business case over time.
- Renewal and termination management
When you are manually trying to track all of your contracts, renewal and expiration dates for each contract can get confusing especially if you are managing a large volume of contracts.
However, having a contract management dashboard where you can easily track all of your contracts will give your team better insight into critical dates, ensuring you don’t become a victim of any unnecessary costs or damage your business’s reputation with the public and other companies.
What happens without proper contract management?
Establishing a strong foundation early in the contract and commercial relationship lifecycle is critical for contracts to work. The consequences of poor contract management are high and you will probably be surprised by just how much poor contracting practices can affect your company's financial health and future.
Here are a few consequences of poor contract management.
- Friction on deals
One of the biggest challenges in contract management is the lack of clarity and scope on the goals or agreements both parties are entering into. A lack of transparency and clarity on objectives can make the contract management process become daunting as it puts both parties at risk of signing something without being entirely sure of everything the agreement they are entering into consists of.
- Friction amongst teams
Lack of visibility can make people start pointing fingers when delays or mistakes happen, which can deeply sour relationships, leading to ineffectiveness and tension amongst teams. With a contract management platform, contracts can be easily created by the use of templates, and making and tracking changes can be managed better.
- Potential risks to business
Without proper tracking, contracts can open up doors for unacceptable risks to your business. For example, if you lose a contract or if a contract expires or you miss deadlines — which can be a huge financial loss for a company.
Let’s take a closer look at a specific example. In licensing agreements, companies have a specific amount of time they can use intellectual property that belongs to another party. Without proper contract management, deadlines for renewal, or a lack of knowledge and awareness of when that contract expires can open up a huge liability risk for your business. Automated contract management allows you to stay on top of the game and avoid losing revenue.
Embrace the age of digital transformation
Being willing to embrace technology will enhance your business processes and boost your competitive edge. Countless businesses are switching to contract management technologies already.
This trend of digital transformation will only grow exponentially over the next few years. If you are ready to make improvements in your legal processes by adopting contract automation in your business to make contractions easier, faster, and more affordable, contact us to know more about contract management platforms and how we can help you track your contracts.