Contract Management Process: 3 Essential Tips for SMBs

HubSpot Video

A poor contract management process not only puts you and your business at risk, it costs you money.

If that sounds like an overstatement, think again.

When you don’t stay on top of your contracts, it’s easy to miss renewal deadlines. That’s your opportunity to increase or adjust your prices with customers.

You could also lose track of cancellation dates. This means you’ll pay vendors for services you don’t want, or miss the chance to negotiate a better rate.

Many small businesses believe they don’t need a contract management process. They believe they’re too small or don’t handle enough contracts.

But it’s never too soon to start managing contracts properly. Even if you think you don’t have enough contracts, you can implement these contract management tips right away.

You Have More Contracts Than You Think

Big businesses aren’t the only ones with contracts. As a small business, you have more than you think:

  • Building or equipment leases
  • Vendor contracts
  • Software licensing agreements
  • Employment agreements
  • Independent contractor agreements
  • Customer agreements
  • Master service agreements
  • Insurance contracts

It’s important to develop a contract management process from Day 1, so you can easily find and manage your contracts. 

You need to decide in advance how you’ll manage your contracts:

  • What do you do when there is a customer or vendor audit? 
  • Where are you keeping auto-renewal dates or the renewal date in general? 
  • Do you have contracts sitting in an employee inbox? If so, would you be able to track it down if they left the company?

You can’t memorize all of your contracts, so you need to know how to find them when you need them. You need to have an effective contract management process.

Three Secrets to Effective Contract Management

What does a good contract management process look like? These tips will help you manage your contracts like a pro.

Tip #1: Store your contracts in one place 

If you’re storing contracts all over the place…

  • Completed legacy contracts in a file folder
  • “In progress” contracts in someone’s inbox
  • Executed contracts in Google Drive
  • Paper amendments somewhere in your office

... It’s no wonder you can’t find them. So this is the first tip: Create one place where all your contracts are stored. 

Use whatever cloud storage your company already uses: Google Drive, Microsoft OneDrive, or iCloud, for example.

And if you’re still using paper contracts, take the time to scan and save them in a centralized location. Paper contracts get lost a lot easier than electronic documents.

Yet putting all your contracts on Google Drive is not enough. Here’s why.

Tip #2: Having a single location only works if it’s organized

Getting your contracts organized could take a lot of time in the beginning. And it will take discipline to make sure your system is maintained. The key is to create a tiered, or tree root, filing system.

Here’s how to do that:

Create a parent folder called, “Contracts.” 

Inside that folder, create a folder for each type of contract:

  • Clients or Customers
  • Contractors
  • Employees
  • Nondisclosure
  • Vendors
  • Warranties

We’ll use “Customer Contracts” as an example. Inside this folder, you’ll create a separate folder for each customer. And inside those folders will be “Drafts,” “Executed,”  “Amendments,” and “Notes.”

The “Notes” folder is for your notes and copies of important correspondence or emails.

So your tree-root contract management system would look something like this:

Contract management filing system

Create this same filing system for every type of contract you have

Then use a standard naming convention — something logical, so it’s easy to track the progress of new contracts and easy to find executed contracts. 

If your team is helping manage contracts, train them on how to create the folders and where to save them. This way, you know exactly where they are.

For example, your filing system might look like this: Contracts > Customer Contracts > ABC Company > Executed Contracts 2022.

Not everyone gets access

For liability reasons, you don’t want your employees to have full access to your contracts. Define the rules of each folder or drive or give individual permissions to those who need them. Or password protect the folders. 

Whatever you decide, make sure your files are secure.

Is someone else authorized to sign contracts?

Designate which employee(s) is allowed to sign for the company. And give them proper approval before signing. This requires a little more training because they need to understand the significance of legal contracts and terms.

Always save a copy. It can be an electronic copy or a printed PDF version. Your contract manager may need to copy and paste the terms into a document to save them digitally. Then have them save the terms to the correct folder with your standard naming convention.

As with customer contracts, you’ll also have a standard naming convention here.

Develop a contract naming convention

Contracts often go through several redline reviews before they’re finalized. Save every version as a separate file so you can track the progress of your negotiations.

Here’s a good naming convention to use:

Counterparty Name - Contract Type (year-month-date) Status

ABC Company - MSA (2022-Jun-8) Executed.

Use your naming convention on every contract that comes through. Even if the counterparty uses a different format, rename the document so it fits your system.

And if you have multiple versions of a contract, use your naming convention to track versions and counterparty revisions.

For instance:

ABC Company - MSA (2022-Jun-1) v1

ABC Company - MSA (2022-Jun-3) v2 ABC redlines

ABC Company - MSA (2022-Jun-5) v3 Our redlines

With this approach, you have a structured system in a single location. You’ll never be at a loss when looking for your contracts because every record is searchable — even if someone saved it in the wrong place.

For instance, you could search for the counterparty name and find all contracts associated with them. Or search for a year-month, and find all contracts from that month.

Tip #3: Standardize your terms as much as possible

As a small business leader and someone who manages contracts, you need to stay on top of the terms in your contracts:

  • What were the payment terms?
  • Can the contract be terminated? 
  • Can we raise our prices? 
  • What’s the requirement if this or that needs to be done? 

Standardizing your contract terms can minimize or eliminate these questions.

For example, you might decide that all payment terms are net 30 days. This makes it easy to determine when vendor invoices are due.

Use the same contract template whenever possible. Either don’t accept redlines or make it clear all the redlines meet some minimally acceptable standards.

This way, your contracts will be almost identical. It also makes it easy for you to perform the contracts without too much organization on the back end.

Know your terms

If you only have a few contracts, you may be able to memorize your commitments because of the standardization you’ve implemented.

But every contract you execute may get pushed back in different ways. So, unfortunately, you end up with a lot of different terms. 

Don’t feel obligated to accept the other party’s terms

Small businesses don't always have the power to push back on terms when dealing with big companies. If you refuse to agree to their terms, they may walk.

It’s up to you to minimize the risks to your company. So, you should have some idea of the terms that are minimally acceptable to you.

And you need to share these standards with the people who can accept contracts for you. This way, you both know the baseline terms you have in place. And you can make decisions for your business knowing that these are your minimum standards.

This makes it easier to remain compliant with all your contracts.

Note: If you don’t know what it takes to be compliant, you’ll fall short of your obligations. That’s a huge risk for your business. And it will only get worse as you get more contracts.

Don’t be a bottleneck

It’s normal for every contract to be slightly different. To close the deal, you have to make changes or agree to something different. 

But that makes it harder to remember all the differences along the way. And you may struggle to train your contract managers on the terms you care about and what’s acceptable for your business.

It may feel like you’re the only person who should approve contracts. But you’ll likely become a bottleneck. And that will slow your growth. 

So standardize your terms. And create a contract management process that’s easy for your employees to learn.

Bonus Tip: Set up notifications

Every contract has notification requirements, renewal dates, and other obligations that you need to keep track of.

But Excel is not your best option for tracking this information. You need to set up calendar alerts as well.

After a contract is signed, either you or someone on your team should review the notification requirements. Then set up calendar reminders.

For example, set a reminder on April 30th for a contract expiring on June 30th. This will give you plenty of time to begin renewal negotiations. 

Some contracts require written notice of cancellation 60 days before the auto-renewal. For these, set the reminder for 90 days prior, so you have time to review the contracts.

This is important data. So set up some redundancy. Include a back-up person on the calendar alerts in case your employee leaves the company.

Need A Better Way to Manage Your Contracts?

To minimize risk for you and your business, you must have an effective contract management process. Using a contract management tool will help.

Delino’s smart contract risk management tool can save you time, money, and worry. Not only will it identify terms that put you at risk, it also notifies you of key dates. And it keeps your contracts in one safe location.


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DISCLAIMER: Delino is not a lawyer and makes no warranties that its advice will protect your business from lawsuits or damages. Users rely on contract feedback at their own risk. Please consult your attorney for legal advice.