Contract management goes beyond just drafting a good agreement and then remembering what you agreed to; it's a rigorous process of measuring, managing and (where possible) automating the development and execution of contracts. It's a repeatable process that ensures legally agreed to obligations are met and legal opportunities aren't missed.
Contract management is one of the most critical tools for maximizing revenue and minimizing liability. Below, we outline eight best practices for enhancing your contract management process.
1. Audit your Contract Management Process
You can't show improvement until you know what you're already doing. Step one is to regularly audit your current processes for drafting, finalizing, executing, storing, and monitoring legal agreements. And it should happen every year.
2. Set Contract Pipeline KPIs
You can't manage what you don't measure, so you should develop some key performance indicators (KPIs) that quantify how well you're developing and managing your contracts. These usually include:
- Risk Identification
Can you quickly define all your contract obligations and whether they are met? - Legal Protection
Can you quickly define all your counterparty's obligations and whether they are met? - Approval Streamlining
How long does it take to draft, finalize, and get approval for a contract? - Cost Reduction
How much money have you outlaid due to contractual obligations?
3. Create a Contract Status Dashboard
You should know the total number of contracts in your development pipeline, who is responsible for them, who is party to them, and what stage they are within a contract development cycle (drafting, redlining, finalizing, out for signature). Check out LinkSquares Dashboard, the first customizable, in-app business intelligence tool for your contracts, bringing a new level of transparency and clarity to all of the information within your contracts.
4. Standardize Contract Creation
You shouldn't have to reinvent the wheel every time you draft a contract. A contract management process should standardize drafting with:
- Boilerplate Language
A collection of standard templates from which to assemble standard contracts; you can iterate any minor customizations from there - "Hot swap" Clauses
Key parts of contracts that vary in predictable ways -- different pricing tables, different SLAs, different renewal schedules, etc. -- these components should be prebuilt so a contract drafter can "hot swap" the correct clause for the correct use case without needing granular approval or a new clause drafted - Minimize Manual Approval
If a contract uses only boilerplate language, it should require less than two people to approve the deal (and maybe less than one)
5. Automate Contract Communication
Integrate all your contract management tools so that legal documents are automatically moved between software tools, rather than risking a lost contract (and lost deal) to the vagaries of email, chat or (shudder) scanners and fax machines.
6. Embrace E-signature
Unless a regulatory body requires a wet signature, every agreement in your portfolio should be e-signed, so it can't be "lost in the mail" and a clear record of what was signed by whom and when is digitally maintained.
7. Use AI for Due Diligence
Artificial intelligence tools make contract analytics and due diligence faster, simpler and more accurate than ever. You should be using AI to analyze what's in a contract, rather than paying interns and paralegals to read and re-read all your legal paper all the time.
8. Create a Contract Repository
All these tools and techniques outlined above require that human staff, software tools and AI agents be able to find all your relevant contracts. You can make that easy (and save yourself lost of headaches) by adopting a digital contract repository that saves all your legal agreement in one digital location, where everyone knows to look and anyone can quickly find what they're looking for.
9. Integrate Beyond Legal
Streamline your contract management processes while allowing other teams to work in the systems that they live in. To accomplish this, integrations beyond the legal team are paramount. For example, let the sales team stay in Salesforce in order to collaborate efficiently.
Follow these tips above and you'll be drafting better contracts faster than ever before -- and saving money in the process.
If you want to adopt a contract lifecycle management (CLM) solution that enables each of the contract management practices above -- and uses artificial intelligence to automate legal functions you never thought possible -- contact LinkSquares today.