3 Steps to Implement Contract Approval Workflows For Everyone in Your Business

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Just because you run a small business does not make your contract management process any less complex – that’s why you need contract approval workflows that your team can get behind. Find out what happens when you don’t have a workflow. Follow these steps to set one up at your company.

Contract Management Involves a Lot of People

If the work governed by contracts was simple, we probably wouldn’t need a contract for it. Contracts usually touch at least two departments and frequently rope in five or six. At a small or medium-sized enterprise, that can mean your whole team, even individual people wearing multiple hats: Legal, executive, sales, IT, finance, and procurement. Each department or role will have its own operating procedures and workflows. To be frank, some departments are going to care more than others about different parts. That is the nature of work: As people, we can only care about so much. The key to getting your people on board is to give each team enough context to understand how their work fits with the whole project.

There’s an assumption that adding a third party makes contracts about 30% more complicated. That makes sense on paper but the reality is more complex. Because each party has requirements and obligations to the other two, you’re actually doubling the complexity of a contract – for both parties! Add a fourth player and, well, you get the picture. It fractals out to a web of obligations that becomes increasingly hard to manage.

Revisions Are a Complex Process

A majority of contracts go through three or more revisions before they are signed – and nearly 30 percent have five or more [PDF]! With each round, your company is investing time and effort but you should also factor in the opportunity costs of delays to the process. Many companies manage revisions by emailing documents inside the company and then sending those to the other party. But anytime you download and attach a document, you’re spinning off a new version. Without an airtight versioning protocol, risk can easily seep in as edits are lost or old versions resurface in the chaos of the revisioning process.

For example, a small business shut down for the holidays in the middle of a revisioning process. When the program manager returned from vacation, she realized it had been languishing for three weeks and pushed it through her team without proper revision. She accepted the changes suggested by the other party without checking previous versions, which showed that the procurement team had rejected one of the suggestions. Now the contract she is sending by email to the other party is out of line with her company’s expectations, creating the right environment for a breach when it comes to fulfillment.

Your Team Needs Visibility to Your Contracts and What They Mean

In the above example, a lack of visibility from procurement into the program manager’s email means that the two parties are no longer aligned on what is required of them. In older ways of working, individual people or teams might be looking at individual clauses or responsibilities but they can’t see the forest for the trees.

When you use a centralized contract management repository and contract approval workflows, any authorized party can see at a glance what the contract says your company will do and what it means in terms of responsibility. All wording and terms are up-to-date always and templates and processes are consistent, and there’s a clear path for what happens next. It also means more investment from different parts of the company. When people can see that their part is roadblocking a contract that is complex and/or worth tens of thousands of dollars, they’re more interested in clearing it.

For example, a manufacturer receives a contract that requires retooling in the factory. In order to deliver, the company would need to outfit each of its machines with a new drill head – at a cost of hundreds of thousands of dollars. The facilities team is up in arms. But they are not seeing the big picture that this contract is worth $20 million over two years, which amounts to 15 percent of the company’s entire revenue. Their internal processes mean they only see the costs but not the benefits.

3 Steps to Develop Contract Approval Workflows

So once you’ve decided to move to a centralized repository and a set of workflows, what are the steps you need to take?

1. Define Your Ideal Process and Stakeholders

First, figure out what you want your contract approval workflows to do and who needs to be involved. Try not to overcomplicate things but it’s important not to skip steps. For example, how does your company go about requesting a new contract? Is it a one- or two-step process, or more like 10? As soon as a process gets to be over about five steps, and especially where handovers are required, it would benefit from having a defined workflow of its own. Many companies develop workflows for redlining and review, and for renegotiating and renewal.

2. Daylight What The Contract Means

Next, you’ll want to find a way to show your team at a glance what the contract requires of you. This way, they can make informed decisions about whether and how they can fulfill your company’s obligations. Some contract lifecycle management software, like Anapact, will analyze the relevant clause and surface a short description of what it means for your company. A more manual solution is to match clauses with requirements and to keep those updated in a notes field.

3. Develop a One-Way Approval Workflow

Much of the heartbreak I see in small business contracts, is breach due to jumping back and forward through the contract lifecycle. There is a well-established contract lifecycle that is proven to reduce risk for small businesses and it comes down to moving contracts one way through a standard cycle, staying in that stage until the work there is complete before moving on.

Contract lifecycle management platform Anapact manages contract approval workflows for you, so you can focus on the big picture with confidence that your approval process is moving fast, judiciously, and with reduced risk. Get a demo today.

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- About the Author

Picture of Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.