Contract Management Process Definition & Stages

Last revised July 3, 2014

Automating the contract management process saves time and adds value to each step of the contract's lifecycle. Let's explore.

Selectica develops software that the world’s most successful companies rely on to improve their sales and contracting processes.

Selectica Contract Lifecycle Management (CLM) is a configurable, enterprise-grade contract management solution that enables you to store, create, and report on your contracts at every step in the lifecycle.

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Think about how you currently manage and track contracts. It likely doesn’t take long before you recognize the pain points in your process that slow sales cycles. You might lack the tools to consistently standardize language across contracts while authoring. Perhaps you’re left following up with multiple people in an approvals chain to see where a contract is stuck awaiting a signature. It could be that your head spins at the idea of trying to quickly locate all amendments to a particular contract in order to get a 360-degree view of a deal.

An automated contract management process involves 9 “lifecycle” stages: request, authoring, negotiation, approval, execution, obligations management, amendment, audit and reporting, and renewal. Full-featured automated contract management should allow you to have complete visibility and control over any given contract from its inception to its renewal. For each step in the contract management process, automated solutions prevent clogs and speed up sales cycles.

The Stages

Before we take a look at the role that contracts play in the end-of-quarter crunch, let’s look at the stages that make up a typical contract process.

Contract Management Process Diagram

  1. Request: It all begins here, where users initiate contracts and find pertinent documents from within familiar applications.
  2. Authoring: Contract creation becomes much easier with automated contract management, wherein users author with familiar word processing tools, as well as standardized language that can be included dynamically depending on the type of agreement.
  3. Negotiation: The ability to compare redlined versions of contracts in various formats side-by-side, and quickly note any discrepancies, reduces negotiation time by half when contract processes are automated and streamlined.
  4. Approval: In the stage that causes the most bottlenecks in contract processes, automated contract management allows users to preemptively strike by tailoring approval workflows, including parallel and serial approvals, and keep business clipping along at a rapid pace.
  5. Execution: Automated contract execution allows users to control and shorten the signature process with tools such as eSignature and fax support, which associates faxed documents with their proper electronic file via barcode.
  6. Obligations management: This stage ensures that deliverables are being met and that value isn’t leaking from contracts. Users maximize contract value with fulfillment tracking, automated alerts linked to expirations, renewals, and key events, post-execution workflows, and sophisticated analytics and reporting.
  7. Amendment: Trying to manually gather all documents pertinent to a deal can be a time-consuming challenge. Automated systems provide a single, effective view of a business relationship across multiple contract amendments.
  8. Audit and reporting: When you automate contract management processes, you can utilize a full range of valuable audit and reporting tools such as contract compliance alerts, audit tracking at the field level, on-demand report generation, one-click access from reports to contract records, and easy integration with third-party reporting tools.
  9. Renewal: With manual contract management methods, renewal opportunities often go unnoticed and potential revenue is lost. By automating your processes, you can quickly identify contract renewal candidates, allowing plenty of time to act, and automatically create new contract drafts based on the previous contract.

The Contract Management Processes and the End-of-Quarter Sales Crunch

The phrase “end-of-quarter crunch” resonates with companies for all the same reasons: the pressure to attain or exceed sales quotas, the demand for approvals and signatures now, and the need to process reams of contracts that magically multiply with each morning’s 10 a.m. FedEx Courier Packs that come in the front door.

During crunch time, the difference between manual contract management and automated contract management is astronomical, and can make or break sales quotas, compensation plans, bonuses, and a company’s profitability. When you have the proper tools in place to automate and streamline contract management, the end-of-quarter crunch can be one of your core strengths as a business, transforming your contract management process into a major asset.

The Typical End-of-Quarter Day

It’s the last day of the quarter, and those involved in the contract process are prepped for what’s sure to be a day chockfull of frenetic energy.

7:00 a.m. — Sales, Sales Operations, and Finance are working frantically on contract approvals, extensions, special pricing requests, reseller, and service level agreements.

7:30 a.m. — Your best customer calls your Sales VP and says they will take an order for an extra 15,000 of your best-selling product — providing you can turn around their contract extension and pricing request. Your mind races to calculate revenue and profit-sharing implications of selling 15,000 units in hours when it typically takes over 60 days to sell under normal circumstances. The bonuses that have eluded your department for over a year are now within reach — providing you can get these contact extensions and pricing requests approved.

8:00 a.m. — The Sales VP, Director of Sales Operations, VP of Finance, and General Counsel are all huddling in the corner office debating what gets bumped from the queue of contracts that grow with the daily FedEx delivery. The hard reality is that another deal may fall into the next quarter if the 15,000-unit order takes too much time from every senior manager in the room. The Sales VP goes to the white board in his office and starts calculating revenue forecast if smaller deals get pushed into the next quarter.

9:00 a.m. — The Sales Operations Director offers to pull an all-nighter if necessary and so does the General Counsel. The General Counsel is reading and reviewing as many contracts as fast and as thoroughly as possible. With your business adding new customers and resellers so quickly, the contracts have been piling up for weeks.

12:30 a.m. — A few of the contracts, done in the early hours of the morning, have errors in pricing schedules and discount percentages that could have been averted if the Sales Operations and Finance teams had more time. The team members plod on as the clock ticks away.

2:30 a.m. — All the contracts are done and the team finally get to go home. The good news is that this is the best quarter ever, the 15,000-unit order has been approved at the pricing your best customer wanted, quotas have been met and in some cases exceeded, and profit sharing has kicked in. Everyone is exhausted, but elated to have closed so much business so fast.

The Value of an Automated Contract Management Process

In the vignette above, Sales, Sales Operations, Finance, and General Counsel made the quarter happen through pure Herculean effort poured into manual contract management processes. For many companies, this becomes the routine at the end of every quarter.

But working harder doesn’t scale over time—working smarter does. And working smarter at the end of the quarter means putting tools in place to streamline business processes.

Think about how you currently manage and track contracts. It likely doesn’t take long before you recognize the pain points in your process that slow sales cycles. You might lack the tools to consistently standardize language across contracts while authoring. Perhaps you’re left following up with multiple people in an approvals chain to see where a contract is stuck awaiting a signature. It could be that your head spins at the idea of trying to quickly locate all amendments to a particular contract in order to get a 360-degree view of a deal.

An automated contract management process involves 9 “lifecycle” stages: request, authoring, negotiation, approval, execution, obligations management, amendment, audit and reporting, and renewal. Full-featured automated contract management should allow you to have complete visibility and control over any given contract from its inception to its renewal. For each step in the contract management process, automated solutions prevent clogs and speed up sales cycles.

6 Benefits of an Automated Contract Management Process

With a wide range of tasks associated with each stage of the contract lifecycle, automating the process is critical to organizations focused on the sell-side. Remember: sales cycles get clogged, and public enemy number one is inefficiency in contract processes. When thinking about how to free up time to sell more while still maintaining a firm grip on each contract’s lifecycle, consider the following benefits of automating your contract management process.

  1. Improve sales cycle time by working smarter, not harder

    Imagine if three 15,000-unit orders arrived on the last day of the quarter. Working smarter, not harder, would have made it possible to close on those deals using a contract management system to streamline reviews and approvals. You would eliminate all-nighters, which would reduce the chance for errors and—best of all—roll-up contract value immediately into the prof-forma financials of your company.

  2. Get your salespeople the information they need right away

    Since we know that sales cycles generally slow down due to lack of information on a given account, the clear remedy is to have all information easily accessible, and in one place.

    Say that you, a sales person, are taking over an account for another member of the sales force who has since moved on to a different company. You are new to the account, and need to search for all associated documentation in order to close the deal and have a complete contract submitted for approval. With an automated contract management process, you can simply enter a search query and end up with the desired documents. However, with a manual process you’d most likely end up hunting through file folders—or begging someone in Sales Operations to do this for you while you’re in the field working to sell more. Information you need may be filed in disparate systems, leaving you to search through multiple databases with the same query. If there had been better account control from the beginning, this process would be simple, regardless of any account changing-of-hands.

  3. Minimize risks associated with manual data entry

    When teams are tired, stressed, and trying to capture all of the information in their stacks of contracts and documents accurately, errors are almost inevitable. It is common for packages containing complete contracts to also get lost at the end of quarters — when they literally arrive in crates and containers.

    Erroneous entry opens the door to a multitude of problems in the contract management process down the road including incomplete, inaccurate pricing, lack of focus on the correct product features and options, lack of consistency with previous special pricing concessions, and — worst of all — no visibility of how the contract concessions impact gross margin company-wide. Allowing a reliable contract management system to capture the information for you — faster and more accurately — ensures that sales teams can not only focus on closing deals and spending face-time with customers, but also save the company money that would otherwise be either spent on contract re-work or lost on missed renewal opportunities.

  4. Hit your sales goals

    It’s no secret that automated contract management processes reduce administrative costs, improve compliance, and diminish risk. How, specifically, can it help you achieve your sales goals?

    Organizations who utilize contract management improve contract renewal rates by 25%, increase revenue by 1%-2%, and cut contract cycle time in half, which means more time to create more sales.

  5. Strengthen customer relationships

    By implementing robust systems to control information flowing between you and your customers’ companies, you demonstrate to your customers that you are committed to going above and beyond to manage, track, and maintain a relationship with them. It is important not to neglect the wealth of information available in contracts, such as pricing, product schedules, promotional programs including Market Development Funds (MDFs) and Marketing CO-OP Funds. These details paint an inclusive picture of an entire customer relationship.

  6. Build solid channel relationships

    The best complement you can give any channel partner is your undivided attention. Automating contract processes gives you the time to focus instead of always running from one fire drill to the next. It gives you control over the “R” word — resources — so you can make the most of your channel relationships and continue to build positive, new ones.

The Bottom Line

Creating cash from contract management chaos begins by owning the contract management process instead of allowing it to own you. Consider re-orienting your contract management strategy to be more focused on closing sales, and less on turning into a track meet at the end of every quarter.

Selectica Contract Lifecycle Management gives you the tools you need to jump the hurdles in the sales cycle and start smoothing out the end-of-quarter madness by streamlining your contract management processes. For more information on how you can start turning contract chaos to cash now through effective contract management, contact us at 1-877-712-9560, or visit selectica.com/cm.