Most businesses have a clearly defined contract approval workflow as part of their contract management strategy which all departments must follow in order to execute their agreements. These workflows make it simpler and easier for teams to ‘get on with the job’ and reduce the run-around time finding the right people to involve in the contract process.
An approval process is the series of steps a business dictates that all new decisions must go through before they can be finalised as ‘approved’ or ‘rejected’.
These steps typically involve sharing the decision with a range of key stakeholders for their input. It is essential that approval processes are followed to ensure all necessary standards have been met, key learnings from previous decisions are applied and costly mistakes are avoided.
Approval processes in business are important to ensure accountability sits with the appropriate, often the most senior, people in the business. It is also important to ensure that every output at all levels of the organisation is aligned to the strategy.
Contract approval stage of the contract lifecycle after or during the negotiation stage. It is the stage where all parties share the contract with their relevant stakeholders internally to verify it satisfies all standards, regulations, budget requirements, aligns to strategy and does not expose the business to major risk.
If a contract does not receive requisite approval from all relevant stakeholders in the workflow it will need to be sent back into negotiation stage. Although necessary, obtaining approvals can sometimes be a long and arduous process, and unfortunately, the longer the contract process, the greater the risk of the contract being abandoned and adding no value.
A contract approval process will be unique to each contract and business, however, most include the same components:
Finance approval – to ensure the contract is within the set budget allocated
Legal approval – to ensure the contract does not expose the business to unacceptable risk
Brand/Communications – to ensure the contract is in-line with the brand and company’s values and expectations
Of course, this can vary depending on the size of the business and the value of the contract.
Defining the contract approval process as a standardised workflow is especially important to protect your business from risk exposure. By having a clearly established and communicated workflow the business must follow, risk exposure is greatly reduced as individuals are informed which additional stakeholders must be involved in the contract process and when.
Establishing a contract approval workflow also simplifies the contract execution process as there is limited running around that contract owners must do to discover who they need to involve in the contract process before it can be finalised. This ensures that contracts move through the workflow as quickly as possible and speeds up the time to contract execution.
A contract approval workflow process also brings clarity to a traditionally ‘black-box’ process. When every contract owner has transparency to their contract’s status, they feel more comfortable that their contract is not being left at the bottom of the pile by Legal. They also have visibility over who is next is the process and therefore, follow up with that person directly to move the contract along - rather than rely on Legal to move the non-Legal approver.
Like any business process, the contract approval workflow should be revised and optimised regularly to ensure it still serves the business’ needs. Key tactics for streamlining the contract approval workflow are:
Make approving contracts easy by ensuring your contracts live in a secure, and easy-to-access place. A single source of truth for contracts allows approvers to always know where the correct and most up-to-date version of the contract they need to review is and prevents them from doubling up. Many businesses take advantage of contract management software as a document repository that also triages and allocates contract review rounds.
Fostering good contract organisational practices in the business also means that the business will always be able to find contracts when they need them – even if the original contract owner moves on from the business.
Generating a set of contract templates is an easy way to ‘scale’ the contract process. Legal often have a multitude of tasks requiring their support at any one time. By providing the business with templated contracts with all critical details and standard terms populated, the business can begin the contract process themselves knowing they aren’t starting off with any missing values. They only need to add the unique contract details such as dates, contract value, and counterparty.
Using a standardised template also reduces the time the contract spends in the review and approval stage as Legal will likely need to make fewer amendments or recommendations.
Establishing a contract approval workflow is useless if no one knows it or follows it. An effective way to streamline the workflow is to ensure everyone in the business knows how the contract process works, where to find contract templates, and which stakeholders need to be involved in the review process.
Many progressive businesses are choosing to go one step further with their contract approval workflows and utilise legal technology that automates their workflow. Contract workflow automation is the natural next step once businesses have established templates and processes for their contracts as it allows anyone in the business to easily access the correct contract template and automatically send it to the correct approvers on any given occasion.
Sharon Heighwey, Senior Legal Counsel at New Zealand energy provider Powerco. Through automating Powerco’s contract approval process with Plexus she says, “we’ve enabled our people to take responsibility for their own contracts, to create them where Legal input is the exception, not the rule, and also to follow our approval process without needing to know the requirements from the outset, they just need to know where to start.”
More and more businesses are leaning on contract workflow automation to help facilitate their contract workflows around the business. The many advantages of contract workflow automation include:
With contract workflow automation, the business has greater clarity of which version of the contract is the most up-to-date and requires review. This means approvers will avoid wasting time reviewing outdated contracts.
In the world of business, ‘time kills all deals’, so the quicker you can get a contract from draft to signing stage, the better. By automating the contract approval workflow, all approvers can be instantly alerted when it is their turn to review the contract, whether they are working from the office or remotely.
The workflow automation also extends to counterparties who can now be automatically alerted when they are required to review a contract during the negotiation or signing stage. This eliminates the need to courier a physical paper contract to their office.
Every business has its own unique rules as to when contracts should be reviewed, and by whom. Contract workflow automation eliminates the need to search for the right approver for specific contract types and values. By allowing admins to configure which stakeholder is required to review various contracts, individuals in the business no longer need to run around to find who needs to review as the workflow will automatically alert the right people when it is their turn.
A great advantage of automating the contract approval workflow is that it allows the business to self-serve their own contracts. Traditionally, the business would need to rely heavily on Legal teams to draft and manage much of the contract workflow which can lead to the process dragging on among Legal’s various other priorities. Instead, contract workflow automation empowers the individuals within the business to take more ownership of their own contracts. They can begin the draft using templates configured by Legal and have clear oversight over the progress through the workflow.
An additional advantage is this frees Legal up from contract admin and gives them back more time to focus on high-value strategic work for the business.
Plexus' contract management software gives you everything you need to accelerate business productivity in one modular platform. Get contracts signed faster, streamline document workflows, collaborate in real-time and integrate with the apps you already rely on.
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