What is the process of entering into a contract?
A business contract or contracting process is an agreement between two or more business units that the law must follow. A contract usually has the names of the people signing it, a list of the services that will be given, how the money will be paid, and other essential details. Everyone needs to know what the deal covers to protect their rights and interests.
The contracting process is a set of steps businesses use to make, discuss, and carry out a contract. At first, both sides agree on who the key players are and their roles.
Next, both sides discuss the agreement’s terms and conditions, such as how to pay, when the work needs to be done, what the service or product will be, any standard agreements, and anything else necessary. After both sides agree on the terms, they must make and sign a legally binding document listing all the details they decided on.
Synonyms
- Contract Generation Process: The total process of creating a contract from beginning to end.
- Contract Management Process: The processes involved in managing contracts once created include tracking obligations and performance, monitoring compliance, and enforcing the contract terms.
- Contract Preparation Process: Preparing the contract documents before they are signed. This includes gathering information, creating a draft agreement, and reviewing it with the other parties to ensure all details are accurate.
What do the contracting processes do
The contract process is meant to protect everyone’s rights and interests from when the contract is awarded to when it is terminated. This process makes it easier for everyone to understand their responsibilities and jobs.
It also makes it easy to settle any disagreements that may come up during the agreement’s term.
Buying on Contract
When a business gets an RFP or RFQ, they and other possible contractors will create a plan. After being given the contract, they must go through the hiring process.
Getting a contract is called contract acquisition, and it involves several steps. Before they can bid, possible contractors need to review the RFP or RFQ and see if they have the resources to do the job. If so, they need to make a proposal that tells the person asking about the services or goods they want to offer, how much they will cost, and when they can be done.
After getting and evaluating the bids, the person or group asking for the work will choose one or more companies to be awarded the job. The winners must then finish the contracting process to make the deal official.
Making a contract
The business can start making the contract as soon as it is given. To do this, you need to get information from both sides, write a draft deal, and discuss it with the other side to ensure all the details are correct.
There are several steps in the process of writing a contract:
- Looking into the applicable laws and rules: Some businesses have to follow specific rules because of their business type.
- Talking to essential people: Everyone on the team and in the project must know the contract terms.
- Writing the document: A company can either write a contract from scratch, use a template, or use a tool for managing contracts to get the job done quickly.
- Risk assessment: The contract should also include ways to handle risks and possible disagreements.
- Finishing the document: Before giving the contract to the other party, the people who made it and those with a stake in the business should look it over to ensure all the information is correct.
It is best to have a template or framework ready for the contract that can be changed to fit the needs of the case. This speeds up the deal cycle and lowers the chance of mistakes and gaps in the contract creation process. This is especially helpful in sales processes that are complicated.
Taking care of contract risk
Many kinds of business activities could have risks. Risk management is finding, evaluating, and managing those risks. As a result, it helps businesses plan for and deal with any risks that might hurt their operations and performance. The goal of risk management is to cut down on or get rid of any losses that might happen because of these risks.
Many things go into risk management, like figuring out what tools to use to lower and evaluate the risks.
During the contract process, this means going over the agreement again to see if either side could use any unclear parts or holes. It also means making sure that sides have ways to settle disagreements quickly.
Talking about contracts
Once the contract is written, the parties participate in a discussion process. So they can clear up any confusion and agree on the terms and conditions and who is responsible for what.
After giving the contract to be looked over, negotiations can include a lot of different conversations about different parts of the deal, such as:
- Increasing the range of goods and services
- Setting due dates and targets for delivery
- Setting the price
- Agreeing on any specific parts of the deal that must be included
Taking care of any possible dangers or liabilities
During the RFQ stage, the terms are often agreed upon, and the company that wins the contract gives most of this information at the start. During the bargaining process, disagreements between the two sides are resolved so everyone is on the same page.
When people negotiate, both sides may have to give something up. This could mean giving up some parts of the deal or changing the language to work better for everyone.
Changes to the Contract
Contract redlining is the process of changing a contract that already exists. This is used when one side has new needs or laws, rules, or policies, meaning the original agreement must be changed.
Both sides of a contract change must review the changes and negotiate until both sides are happy with the deal.
Approval of Contract
After the talks, both sides must agree to the deal before it is finalized.
The time needed for approval can change significantly based on the number of concerned parties. It’s essential to have a streamlined way to get the required approvals without waiting.
Finishing the contract and signing it
The contract is ready to be signed once everyone has approved it.
This is when the official paper can be given to both sides. This is usually done through an e-signing platform, which lets people trade signatures quickly and safely.
As soon as all parties sign, the contract is legally binding, and the signing process is over.
Renewal of Contract
The process can be done again to renew the agreement at the end of the contract.
This means returning to the original contract and judging how well it worked throughout its life cycle. The contractor and sales team should also look at any changes in business wants or goals that might mean the terms must be changed.
If the contract terms need to be changed, the parties will start the discussion process again.
Cancellation of Contract
- Either party can sometimes decide to get out of the deal completely.
- There are a few reasons why a contract could be broken:
- There are no longer any business needs the contract meets for either party.
- One party can no longer afford the terms of the deal.
- The business has chosen to look into another choice.
In any case, both sides should agree on handling the cancellation process and what will happen to any responsibilities already in place. This should be made clear in the contract’s cancellation language so that everyone knows their rights and duties.
How to Make the Contracting Process Work Better
When companies have complicated pricing plans, the contracting process can be complex and time-consuming. There are, however, several ways to make it lighter.
1. Use a system for managing contracts.
Software for managing contracts speeds up talks and makes it easier for teams to work together. This ensures that everyone has the most up-to-date knowledge, lowering the risk of misunderstandings or mistakes.
2. Use automated tools
Some parts of the hiring process can be made easier and faster by automating them. Sales automation can save time and money by creating documents, signing them automatically, and sending contracts to be approved automatically.
3. Make sure compliance
Following the terms of the deal is very important. Businesses should make sure that their contracts follow all laws and rules that apply. This means that there needs to be a substantial compliance review process in place so that all contracts are checked for truth before they are signed.
4. Set up transparent processes.
Setting up clear steps and methods helps the contracting process go smoothly. A plan for managing contracts includes:
- Setting up templates
- Giving people in the company jobs and roles to do
- Setting up rules for alerts
- Setting dates for sign-off and review
These steps will help make the process easier, reduce mistakes, and improve the method for managing contracts.
5. Teach your employees how to manage contracts.
Employees should be taught the contracting process, and tools should be given to them to help them fully understand how the process works.
Also, salespeople should know the legal details of contracts to ask the right questions and get the best deals for their companies.
Advantages of Making the Contracting Process Automatic
Automating different parts of the hiring process is very helpful for businesses and sales teams.
1. Better efficiency
The best thing about contract management software is that it can make the whole process of signing a contract more efficient.
Buying things: Salespeople can close deals faster if they can quickly write, review, and sign contracts.
Preparation: Creating documents, sending them for approval, and signing them all happen automatically, which cuts down on the time it takes to get a contract ready.
Validation: Automation can also help ensure things are correct by showing any possible legal problems before signing contracts.
- PwC says that automating contract management leads to
- A negotiation loop that is 50% faster
- 75 to 90 percent fewer wrong payments
- 10–30% less money spent on running and handling contracts
Companies can focus on more critical tasks, like managing customer relationships and developing sales strategies, because of this.
2. Better visibility
Automation makes it easier to see how contracts are going so managers can monitor them and take action as needed.
For example, if a deal takes longer than expected to be approved, managers can step in and fix any problems slowing things down.
3. Less danger
Compliance is an essential part of any contract process that works. To stay compliant, you must always know the rules and laws.
By letting teams quickly fix problems before signing contracts, automating the contract process can help lower compliance risk by pointing out possible violations before they happen. This eliminates the chance of later legal issues because of failure to follow through.
4. Better Making of Choices
Contract automation raises the quality of the data used to make choices. This lowers risk and helps sales teams negotiate better deals, making selling a better experience.
Contract data can give sales teams analytics and insights that help them make decisions. This lets them negotiate better and close more profitable deals.
5. A Better Experience When You Buy
To get the most sales, you should ensure the buying process is as smooth and quick as possible. One meaningful way to measure the buying experience is the sales cycle time. Contract processes take up 18% of the sales cycle time.
Automating contract management makes it simple to make, review, and sign contracts fast. This cuts the time it takes to make a sale by a lot and makes the buying experience better for buyers.
Technology that will make the contracting process easier
Many tools can be used to make the hiring process go more quickly.
Keep track of your customers with CRM.
With CRM software, sales teams can store, organize, and keep track of all customer information and papers in one place. This helps them stay on top of things and smooth the hiring process.
Almost every business uses a CRM tool, and contract management software that works with CRM makes hiring easier than ever.
CLM lets you manage the lifecycle of a contract.
Software for contract lifecycle management (CLM) is meant to make the whole contract process automatic. It keeps contract files in one place and lets you quickly and correctly write, negotiate, track, and sign contracts.
CPQ lets you manage contracted prices.
One important thing that a Configure, Price, Quote (CPQ) system does is manage contracted pricing. With CPQ software, sales teams can set up, price, and quote goods and services quickly and correctly. This feature can help you save time, get more accurate results, and give your customers the correct prices for their orders.
The CPQ system works with ERP, CRM, and CLM, which means it can get all the essential contract details for each customer. This includes types of products and services, item descriptions, unit costs, discounts based on quantity, unique discount structures, delivery costs, taxes, shipping information, payment methods, warranty periods, return policies, discounts for ordering in bulk, contract or quote expiration dates, and promotional codes that give extra discounts or special deals.
Sales teams can quickly make correct customer quotes by putting this information into the CPQ system. The price is the customer’s agreed price as soon as it is written in the contract. Sales workers can also change prices for new orders based on existing contracts or orders from the same customer in the past.
If you set up your CPQ system correctly, it’s easier than ever to keep track of scheduled prices correctly and quickly. These steps make it easy for customers to understand their contract terms and give them peace of mind that they are getting the best price for their orders. It also helps businesses make the most money possible by ensuring they get the agreed-upon price for their goods and services.
