What is customer contract management?
Customer contract management is the process of managing and monitoring agreements held by an organization. It allows companies to keep track of deliverables, products, services, timelines, and other contract obligations. It also helps ensure the contract and all its elements comply with any relevant regulations or requirements.
Smaller companies leave the responsibility of these processes to a contract manager. At the same time, larger organizations may require a dedicated contract management team filled with professionals from both legal and financial backgrounds.
Organizations across industries typically use contract management software to automate the creation, tracking, and monitoring of contracts. These tools also simplify various processes by allowing users to create, store, manage, and share complex business contracts to avoid bottlenecks within the negotiation stage.
Types of customer contracts
Most customer contracts fall into one of three categories. The types vary based on the deliverable and how it’s defined.
- Fixed price: Used when the obligations and statement of work are clearly defined. The organization sets a fixed price quote for the entire project, accounting for any risks that may interfere.
- Time and materials: Quotes time and material costs. It accounts for the possibility that the project being worked on with a customer could cost more than initially planned, as the time and materials needed for a project are unpredictable.
- Cost reimbursable: The customer pays the cost of the project or item plus an additional fee for profit. The fee is outlined in the contract, while the cost incurred by the organization is calculated and paid upon completion.
Benefits of customer contract management
Proper management of obligations and agreements benefits the organization by keeping employees well informed, reducing lost business, improving productivity, and more. The main benefits are:
- Manage multiple contracts. Businesses can organize and manage large numbers of contracts so they are easily located and can be accessed daily.
- Secure storage. Documents are stored securely in the cloud.
- Accessible. Employees can use search for specific terms to locate and access a specific contract in seconds.
- Notifications. Employees are notified when documents need attention. Alerts are sent whenever it’s time for a deadline, milestone, or renewal.
- Reporting and auditing. Helps organizations adhere to contract terms and avoid potential fees.
- Improve productivity. Streamlines the management and risk assessment process and keeps employees updated with all contractual obligations.
- Avoids lost business. Better management of customer agreements helps companies avoid inefficiencies that lead to lost business.
Basic stages of the customer contract management process
The process covers every stage the contract goes through, from creation to renewal. Here are the basic stages, from start to finish:
- Create: Contract requests are given to the legal department for review and creation, or software is used to generate contracts approved by legal.
- Negotiate: Employees discuss documents internally, edit, and form an agreement.
- Approve: All stakeholders review and approve the draft.
- Accept: The organization chooses what signing method to use.
- Fulfill: Holds the organization and the customer to their contractual agreement.
- Analyze: Contract metadata is collected and analyzed.
- Optimize: The collected insights are used to improve the contract management process and drive business growth.
- Renew: Customers and organizations decide whether or not to renew their agreement.
Customer contract management best practices
The right tools can make or break customer contract management. To experience all possible benefits, organizations should adhere to the following best practices:
- Choose the right system. Tools and software can streamline the process. Companies can ensure they’re choosing the right system by opting for a free trial option that provides plenty of resources to help with implementation.
- Prioritize support. Effective customer contract management requires support from the software used and insight from legal and finance. Companies should build a support system to help their employees seamlessly implement the strategy to create and manage contracts properly.
- Implement the system one contract type at a time. Applying a new management method to just one contract type at a time and prioritizing the most pressing contract types first can speed up the time to value and prevent employee overwhelm.