What you need to know about digital contract management
Digital contract management entails much more than archiving contracts, sending documents and collecting signatures. When utilized correctly, digital contract management will enhance the company’s business operations, leading to savings in working hours, workloads and costs. Many organizations still draw up their contracts using Word or Excel files, wasting the full potential of the information they contain. Investing in digital contract management tools is often considered of secondary importance, as companies are unaware of the benefits of such tools in, for example, expanding their business operations.
According to the Global Contract Management Association IACCM, despite the fact that 80% of business activities include dealing with contracts, about 20% of all contracts are permanently missing. Contracts that are unaccounted for create substantial risks for the operations of the entire company, making it extremely important to invest in the centralized management of contracts.
So, efficient contract management is a vital part of the processes of a successful company, but what does it really mean? We compiled some frequently asked questions about the implementation, functions and benefits of digital contract management tools.
Frequently asked questions about contract management
- What does digital contract management mean?
- What are the benefits of digital contract management?
- How is digital contract management different from, for example, document management systems or contracts made with Excel or Word?
- How can contract data be utilized?
- Is the data security of the contracts guaranteed?
- Can all the employees of the company access the contracts in the system?
- How does the electronic signature work?
- What are the benefits of an electronic signature?
- How is the system implemented? How is it integrated with existing systems?
- What types/sizes of organizations would benefit from digital contract management?
- Does it suit all types of contracts?
1. What does digital contract management mean?
Digital contract management refers to an information system that stores and manages a company’s contracts and other contract-related documents. The purpose of the system is to enhance the monitoring of a contract’s life cycle from contract negotiations to electronic signature. The system also provides information on the status and development of the contracts so that the company’s business operations are managed as efficiently as possible, not forgetting risk management.
2. What are the benefits of digital contract management?
Contract management is a strategic part of any company’s business operations. With efficient contract management, the company can strengthen its competitive edge and quickly respond to the challenges of the rapidly-developing operating environment. Digital contract management supports the objectives set by your company in terms of, for example, structural changes and the development of new products, and helps you to quickly react to any contract-related reports and reclamation requests.
Digital contract management is an efficient method for archiving and sharing contract information within an organization, regardless of the geographical location. You can always see the overall status of your contracts which minimizes risk management and makes budgeting easier! By actively monitoring the key dates in all your contracts, you will never miss a contract’s renewal date or fail to use a contractual option. Important contract information will no longer be held by just one person; the system makes contract information more widely-available within your company. Digital contract management will reduce the bottlenecks in your organization and having the company’s contracts in order frees more time for productive work. Contract management systems provide unparalleled information on contracts, making it much easier to develop your overall business operations.
3. How is digital contract management different from, for example, document management systems or contracts made with Excel or Word?
Compared to systems designed for saving Word and Excel-based documents, digital contract management offers a wide range of benefits. For example, a digital contract management system provides templates designed for various contract types, ensuring a standardized format for all your future contracts.
Digital contract management also plays a key role in the development of business operations, particularly by improving the availability of contract information. The system ensures that all the contracts of the company can be found in the same place, which makes contract information conveniently available to all authorized employees. As a result, the contracts are no longer stuck behind the e-mail or computer passwords of specific individuals.
Systems such as Excel and Word do not enable users to monitor the implementation of negotiations and contracts. They don’t allow you to automate the management of contract monitoring, things like the fulfillment of contractual obligations, renewal of contracts or the compliance of the contracting parties.
The same shortcomings are also typically found in various document management systems. Document management systems may be suited for some contract management tasks, but such systems usually offer contract management as an additional feature that requires both product development and customization in order to function properly.
4. How can contract data be utilized?
Contract management starts when the contracts are drawn up and continues until they are electronically signed. When the entire life cycle of a contract is controlled with an electronic tool, the system produces a large amount of valuable contract information for the company. In fact, utilizing the information obtained from contracts is one of the most useful functions in digital contract management in terms of developing business operations.
The system enables you to assess and compare the status of your contracts; you can easily see if a contract needs to be renewed or amended or if the terms and conditions need updating. This prevents you from paying for expired contracts, forgetting about contractual options or accidentally failing to renew contracts. Digital contract management also lets you create various reports and reminders that further enhance your ability to use the information obtained from the company’s contracts.
Contract information can be utilized in, for example, planning the finances of the entire company, selecting the most suitable suppliers, negotiating the wages of employees and developing supplier relations. Contract information makes it considerably easier to draw up new contracts. The information obtained from old contracts helps analyze, for example, whether the terms and conditions of the contract were fulfilled, whether they could be developed in order to achieve better results and whether the next contract could contain prices and conditions more favorable for the company’s business operations.
5. Is the data security of the contracts guaranteed?
The significance of data security in contract management cannot be exaggerated. The secure archival of your contracts is vitally important, regardless of industry. When procuring a contract management tool, we recommend ensuring that the software offers reliable protection. Remember to check that the service provider offers at least the following data security features:
- two-factor authentication
- functionalities for processing confidential information
- restricted contract information feature that restricts which contracts or parts of contracts specific individuals are allowed to view.
6. Can all the employees of the company access the contracts in the system?
Even though the contracts are managed through a single system, it does not automatically mean that each employee, regardless of their department, can access the contracts. When procuring a contract management system, pay attention to the options for specifying access rights for different users within the system. Access rights can be based on roles, for example, so that the employees of a specific department only have the right to process contracts that are relevant to that department’s line of work.
7. How does the electronic signature work?
There are various electronic signature methods, but they usually utilize strong electronic authentication to ensure reliability and safety. This means the signature is based on a qualified certificate. In other words, this type of electronic signature is based on the use of certificates that are individually authenticated, such as online banking credentials, mobile certificate or electronic ID.
In practice, electronic signatures function as follows:
- The document to be signed is added in the service
- The service creates a page for the signature(s)
- The service sends signature invitations to each party
- The parties use two-factor authentication to log in to the system
- The parties sign the contract
- The contract is in effect
8. What are the benefits of an electronic signature?
Electronic signatures offer a large range of benefits. Signing contracts and documents the old-fashioned way may take days, sometimes even weeks. Mailing papers, signing them, counter signing them and mailing them back is complicated and time-consuming. During the long mailing process, paper contracts may easily go missing, making it difficult to ensure that all the parties have the most recent version. The key benefits of an electronic signature come from its independence of physical location and that it is a substantially faster signature process.
As electronic signatures require authentication from the signatories, it is also unquestionably a more secure option for signing contracts. The document is transferred from one party to another securely and quickly, saving both time and money.
9. How is the system implemented? How is it integrated with existing systems?
The implementation of digital contract management is generally very simple. Contract management systems are often produced as cloud services, making implementation quick and effortless.
A contract management system can also usually be easily integrated with the other processes and systems of the organization, such as the CRM, the financial management system, the procurement and supply chain management system and the production management system.
10. What types/sizes of organizations would benefit from digital contract management?
We often get questions about the types and sizes of companies that could use electronic contract management. The answer is simple: all types and sizes of companies benefit from electronic contract management. A digital contract management system can manage the contracts of small, medium-sized and large companies in a centralized manner, regardless of the contents and numbers of contracts and the type of industry.
11. Does it suit all types of contracts?
Generally speaking, digital contract management tools are well-suited for managing all types of contracts.