Managing your contracts, especially after the signature, determines how effectively and efficiently you’ll be able to track obligations, manage risk, stay ahead of renewals and provide contract insight to the business.
According to Ernst & Young, over 50% of organizations say inefficiencies in their contracting processes have cost them business. Therefore, it’s crucial to have a strategy to ensure contract information is organized and readily available.
While many contract management tools are available on the market, many organizations aren’t ready to leap. They are just trying to figure out the best methods for manually managing their contracts with current resources and tools.
So, exactly what does it take to stay on top of contracts? Here’s your step-by-step look at manual contract management.
1. Find the point person
The first step in managing your contracts is to select a point person. This person’s dedicated job will be to take ownership of contracts after they’re signed and ensure they are organized in a repository.
Why select only one person? The saying “too many cooks in the kitchen” applies to this situation. Contract management requires daily, diligent adherence to a step-by-step process. Add too many players to the project, and pain points will likely surface.
After selecting a point person, it’s important to consider access and visibility. How will you give and restrict access to your contracts? Your team will have to decide whether you’ll allow everyone at your organization to see all contract information or if you’ll only give certain people access.
In addition to access, thinking through a potential transition process is key. What will happen when your point person leaves their position? Best case scenario, the contract organization lead is promoted and still available for quick questions. But let’s face it: they won’t manage your contracts until the day of their retirement party.
It can be a major headache to transition data and get the next responsible party prepared to manage contracts with the same integrity. For this reason, a transition plan with multiple backups can help you prepare for many circumstances.
2. Pick a contract repository
With your point person in place, the next step is to pick a centralized place to store your contracts. Over time, contracts can end up in many places including multiple hard drives, CRMs, email attachments, digital signature tools and even saved as hard copies.
But to enable easy access and centralized visibility, it’s critical to pick one place to store all your contractual documents.
For many organizations, this selection is a cloud-based storage repository, like Box, Sharepoint or Google Drive. If your contracts are stored on a hard drive, few people will be able to access it and you’ll risk losing track of your contracts.
3. Design a naming convention
Choosing a folder structure or naming system is critical to organizing your contracts. You will want to create a file naming convention for your folder system that is easy to understand, and track each file name accordingly in a centralized spreadsheet.
Some organizations use a numbered folder structure, with various clients corresponding within a numerical system. For example, each folder including sales contracts, procurements contracts, HR contracts, partner contracts, leases, etc., would get its own number.
4. Locate all contracts
The next step is to get all of your organization’s legal documents into the contract repository. Before you begin, consider scoping: Contracts are more than just a single document. A contract represents the entire contractual relationship between you and the counterparty–it may include a Master Agreement, NDA, Order Form, Schedule, and an Amendment. So to have a complete view, it’s critical to ensure you include all legal documents for each contractual relationship.
Also consider: Will you include sales materials and proposals from your vendors? How far back will you go? What are the limits? Deciding how far back you want to go and what type of documents to include will make a difference in your collection process.
Once you’ve decided on the right scope, team members are the best place to start the collection process. Contact each vendor team (or customer team or partner team — the list goes on). They should be able to help you uncover where contracts are located and tips on the easiest way to get them into the single source of truth location.
You can also get contracts in one place by grabbing them from your CRM (like Salesforce) or sending them all to one email. Make sure you check hard drives or even billing systems for historical documents.
Once you get all of your legacy contracts into one place, you’ll need to make sure any new contracts are also added. This process will ensure that you have every contract you need in your repository, therefore you need to ensure
everyone knows how to use that process.
5. Track key contract terms
With your contracts now organized in your contract repository and the right folders, you’ll want to build a spreadsheet to keep track of your contracts and the information within. A cloud-based spreadsheet or an Excel file can both be good solutions for this. To keep track of contract details, you’ll want to return to your numbered system.
For example, when your organization finalizes a new sales contract, the first step is to connect the PDF to your spreadsheet. So, if your sales contracts folder is numbered 1, the PDF file would be numbered 1.1. With a complete naming structure, that file might look like: 1.1 Contract name, Counterparty, Effective Date. In the spreadsheet for 1.1, you’d fill the information in the columns for document title, counterparty and effective date. The next sales contract would be numbered 1.2, then 1.3 and so on. It would look something like this:
Think of the spreadsheet like the index of a cookbook. You can find the recipe for “Chicken pot pie” indexed under C for Chicken — but you can also find the same recipe under P for Pie. The contract management spreadsheet can serve as a similar resource.
If a contract is amended, you may want to organize it by adding another point. Instead of being 1.4, the amended contract would be numbered 1.4.1. That would signify the first amendment to the fourth sales contract.
In this process, the team member enters the data, copy and pastes provisions and makes changes as amendments are made. Thus, teams will be able to sort contracts and see where they sit together.
6. Review auditing and exception handling
Unfortunately, 1 in 5 legacy files contains issues or errors, ranging from minor formatting to major concerns like missing pages or amendments. Catching these problems requires manual review. And that’s on the plate of the point person for your organization’s contract management, who will need to decide how to identify and solve gaps in your contracts.
Part of this issue identification may involve a thorough review as contracts are added to the spreadsheet. When a problem is found, parties involved can be emailed to uncover the solution. (Fingers crossed those parties are still with the company.)
Ensuring accuracy is essential as team members use the contract spreadsheet to find terms or provisions and take action. If terms are amended, that also needs to be taken into account. It’s important to make sure your team is working from the most current terms, and knows what contracts are active.
7. Set alerts for renewals and expirations
Creating alerts for important dates like renewals and expirations will help keep your team on track. You may want to note dates like effective date, renewal date and renewal notice in your spreadsheet. Then, add those dates to the calendar — whether it’s your master calendar or another program.
Every time these contract alerts come up in the calendar, you will then dedicate time to updating the spreadsheet. For each contract, you’ll need to track down the right dates to coordinate all details.
While calculating the renewal date depends on the contract, a few key details are critical. You’ll need to know:
- The effective date (which is not always the date the contract is signed; this may be the go-live date, for example)
- The term (in years or months, but consistency is key for tracking)
- The renewal type (for example, auto-renewal, fixed term, option to renew, etc.)
- The renewal period (i.e., one month, month-to-month, evergreen, etc.)
An internal notification process is also integral since the key players will need visibility and reminders as contracts approach renewal dates. For example, the account rep will need to be notified if a sales contract is approaching its renewal date.
The larger the contract, the more early notice matters — and the more team members will need to be in the loop. Creating a policy can be helpful, so you’ll expand the notification circle beyond the rep and the notification timeline for contracts over a certain dollar amount.
8. Set up ongoing maintenance
Keeping the contract database up to date is imperative to ensure the data can be relied on. Therefore, planning for ongoing maintenance is an important aspect of contract management.
Depending on what system you and your organization have created, the more you prepare and plan to complete the tasks that will keep your contracts current, the smoother utilizing these contracts will be day-to-day.
Stick to your process and keep chipping away at to-do’s to create a complete contract repository. If you spend a little time every day or every week, you’ll improve the accuracy and availability of contracts for your team.
How does Pramata help?
We hope these contract management tips have been helpful. But like most of our customers, companies eventually get to a place where a manual process is no longer scalable. In some cases this means missing commitments, renewals or expirations. Or it takes far too long to constantly field and answer contract questions from internal teams, customers or vendors.
That’s where Pramata can help.
At Pramata, we help our customers ease the burden of transitioning from manual contract management to an automated solution. Pramata makes contract management easy — If you can upload a document, you can do this.
We do the work for you! Our system combines robust technology and an expert assist team, so manual contract management is off your plate once and for all.
Pramata is the radically simple alternative to slow, manual and complex contract management. Want to learn more about our trusted approach and better solution? Get a demo today.