Approval

The duration of contract approval varies, depending on the number of parties involved. If the deal relates to a small number of stakeholders, the process may not be a long one. On the contrary, the process can be longer when it involves multiple parties. Let’s read more below!

What is a contract approval?

A contract approval is a stage that lies between a deal’s formulation and execution. The contract formulation refers to inserting all terms and conditions from all stakeholders. It also includes the negotiation processes that may occur multiple times until all parties approve the specifications. The deal execution means agreeing to sign and take action.

In simpler terms, contract approval is the last point at which all parties assess all of the contract contents. They review, verify, and may change some of the terms before signing it. It’s the final stage, in which all stakeholders are on the same page. Besides the terms and conditions, the stage requires all parties to study the regulatory sides.

In this regard, they ensure the deal meets the firm’s policies and legal standards. Moreover, the contract approval gives them the chance to ensure that the agreement will support their business operations. When necessary, they can ask for input from their internal team members who deal with finance, legal, and business activities.

Goals of contract approval

A contract approval offers three main benefits. The first is identifying all risks that possibly emerge from the business deal. All stakeholders must know in advance what legal, financial, and operational risks they may face down the road. Therefore, they can prepare a set of solutions to resolve the issues.

Secondly, a deal of consent is useful to ensure that all sides comply with the internal and external legal regulations. This aspect of law is essential because breaching any of the rules results in legal consequences, including imprisonment. Moreover, this step builds strong and clear communication between all sides of the business deal.

Lastly, this is such a huge basis for executing the contract after signing it. In this regard, all parties believe each of them will perform their tasks and meet the targeted outcomes. They work at their best to achieve financial and business goals for all, not just for their own interests.

The roles and tasks in a contract approval

A contract approval usually brings together officers working in the legal, finance, business development, department heads, and management departments. In other words, the step requires in-depth reviews across fields from their top workers. The number of staff involved in the stage may be greater for a global business contract.

For this agreement type, the stakeholders may need to hire external legal advisors, who will provide inputs on global contract regulations. In general, the tasks and roles of each of the party’s members follow their daily jobs. To get a clear picture, let’s explore the tasks in the list below.

• Legal team

At the approval stage, the legal team acts as the regulatory guardian and risk mitigator. It reviews all terms and conditions to ensure they comply with all standards and rules involved in the business deal. In the case of risk mitigation, the team identifies possible legal risks and solutions. It helps draft the contract clause and negotiate with the targeted stakeholders.

• Finance department

The finance division assesses the financial aspects of the deal. The components include pricing accuracy, payment schedules, and budget alignment. The pricing accuracy details all prices mentioned, such as the prices of the raw materials or services. Payment schedules refer to the exact dates on which the client should pay for the products or services.

• Business development division

Some firms use a sales team instead of the business development division. At this approval stage, the department examines the terms so that they support revenue goals. Besides, in customer-based contracts, this division initiates the business deal because the department is the first one to know the needs of the customers.

• Procurement team

This department contacts all suppliers and vendors. It communicates and handles enquiries from them. At this phase, it checks the terms that relate to those sides, hence no risks will emerge. If the risks appear, this division is ready with the mitigation efforts. The other task is ensuring the agreement is in line with the sourcing policies.

• Department heads

Department heads at the approval stage evaluate whether the contract is operationally feasible. In this regard, the leaders calculate the current resources and capabilities. They later assess and predict whether those resources and abilities will be enough and efficient to perform new tasks that will arise from the business deal.

Digital tools for contract approval

Contract managers or other relevant positions can take advantage of digital tools to streamline their jobs. Those contract lifecycle management (CLM) online platforms are helpful because they offer features to make their tasks more efficient. The features include automated approval workflows, native e-signatures, and customisable templates. The first feature allows for faster contract routing for the stakeholders.

Therefore, they can find it easier and quicker to review and give consent. Besides, the customisable templates are useful for cutting the time needed if the parties have to create a contract form from scratch. They can simply change the terms and conditions in the contract template with their own contents. This ensures consistency throughout the agreement.

At last, the digital tools for contract approval integrate all signatures directly into the deal. Those signatures are all legally binding, just like the physical signatures that you see on papers. This practice is a lot more efficient than having to meet offline to get signatures from all parties. The digital tools, such as Juro, Ironclad, and DocuSign CLM, offer the above features.