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The Importance of Contract Management Systems in Business ‍

Contracts are the backbone of any business. They govern relationships with external vendors, partners, employees, and clients. However, managing contracts can be a daunting task, especially for mid-size and larger organizations. Fortunately, contract management systems (CMS) have evolved to help organizations streamline their processes and improve compliance, risk management, and financial performance. In this article, we will explore the benefits of using a contract management system to manage your contracts effectively.

What is a Contract Management System?

A Contract Management System (CMS) is software designed to automate and streamline the contract management process. It provides a centralized platform for creating, negotiating, approving, storing, and managing contracts. A CMS is used to manage the entire contract lifecycle, from contract creation to expiration or renewal. A CMS also ensures that all parties involved in the contract understand the terms and conditions, and that they comply with them.

Benefits of Using a Contract Management System

1. Improved Contract Compliance

A CMS allows organizations to streamline their processes and provide better contract accountability from request to approval. With a CMS, critical terms cannot be deleted, and only authorized personnel have access to editing the document accordingly. A CMS gives you control over your contract, ensuring that all parties understand and comply with the terms and conditions.

2. Risk Reduction

With improved contract compliance comes the significant benefit of risk reduction. Enforcing and operating on the latest terms and conditions, as specified in your contract, helps improve overall compliance. A study by Aberdeen shows that compliance management is enhanced by 55% by using a contract management system. Compliance, along with the ability to demonstrate it, depends on audit trails and compliance monitoring.

A CMS also helps to reduce supply chain risks and on the whole, buys are less costly and more valuable, improving overall risk management. Using a contract management system allows for greater effectiveness in supplier onboarding courtesy of validation and certification tools. It makes it easy to identify contracts with diverse suppliers and those that are in high-risk zones, be it because of economic uncertainty, political unrest, or natural disasters.

3. Better Document Management

With a CMS, there is no need to outsource document storage or take up valuable office square footage with messy filing cabinets. Team members can scan paper documents directly into the system with an automatic image or optical character recognition so that all documentation relevant to the agreement is available from one location. Additionally, it’s possible to import electronic contracts from any type and display document status with other relevant details for all of them. Features including version control allow you to keep track of all of your contacts from a single repository.

4. Stay Ahead of Renewal Dates

When you archive a contract automatically upon expiration and use alert notifications based on rules you specify, you can improve your renewal awareness. A CMS allows you to configure alarms with default or custom settings as a recurrence. The alarms won’t reset until the next milestone has been reached by the assigned team that you can make sure the appropriate action is being taken towards the renewal date. With better contract management, organizations increase the contract lifecycle completion rate.

5. Stay Prepared for Audits

With audit trails, you’ll have access to your entire contract history with just a few clicks of the mouse. As such, you’ll be able to maintain an accurate account for auditing and keep track of your full audit Trail for policy compliance purposes.

6. Increased Contract Visibility

Storing files in a single centralized digital repository allows for better compliance and reporting. With a central contract repository, you can ensure your staff is working from the most up-to-date contract templates from legal teams and using the latest clauses. Should your staff need to access any of this on the go, you can authorize access through a password-protected website that’s available anywhere there is an internet connection. This way, the latest templates, and clauses are open to any authorized staff members anytime, anywhere.

7. Shorter Approval Times

By completely automating your contract process with customizable workflows, you can expedite the review process and improve efficiency. Creating a dynamic workflow to-do list allows you to scan all contracts, so contract managers have a better idea of your current state of affairs. With this information, you can notify responsible parties by email to remind them of the next steps or clearly define escalation procedures.

8. Financial Optimization

A contract management system helps to eliminate unplanned renewals of unwanted services and reduced legal fees. It also provides spend visibility, which is essential for ensuring you’re getting the best value for your investment. Organizations that link their sourcing and contracting processes are more likely to retain a higher percentage of savings. Best-in-class procurement teams reported an annual savings of 37% higher than their peers. Purchasing from approved suppliers at the right times, for the right quantity at the agreed-upon price, reduces maverick spending. Tracking rebates, delivery time, and volume discounts ensure that all of the negotiated savings in a sourcing cycle are realized.

9. Increases Productivity

Forecasting is much more accurate with improved data and analytics. Using a contract management system allows you to check critical milestones better and provides automated tools and alerts so that you receive notifications as needed. By getting rid of manual processes and centralizing your document repository, you have greater control over your process and workflow efficiency.

10. Collaboration

A CMS allows authorized users to collaborate on the same contract simultaneously. They also enable them to automate manual processes. By managing many contracts at once, your employees spend less time on administrative tasks and more time on what really matters: growing your business and increasing your bottom line.


In conclusion, using a contract management system is essential for businesses that want to streamline their contract management process, reduce risk, and improve compliance. A CMS offers several benefits, including improved contract compliance, risk reduction, better document management, stay ahead of renewal dates, stay prepared for audits, increased contract visibility, shorter approval times, financial optimization, increased productivity, and collaboration. By using a CMS, you can manage your contracts effectively, improve your bottom line, and grow your business.