Contracts with customers at enterprise software companies follow a very specific pattern from requesting drafting of a contract to approval by both parties to document storage and potentially re-negotiation. Because revenue accounting can be directly impacted by non-standard contract terms, the revenue team is involved in most steps of contract lifecycle management; sometimes as an informed party, but often as an active contributor to process and negotiations.
Contract Request
The beginning of the cycle starts when the sales team reaches the negotiation stage with the customer and asks the internal legal team to help draft a contract. Generally, sales is equipped with standard templates of Master Service Agreements (MSA), or other types of governing agreements, and Order Forms and Statements of Work (SoW) that have been pre-drafted by legal with input from other relevant parties at the company including the revenue team, sales finance, and sales leadership.
If the customer agrees to the standard template, other than negotiations for product, pricing, length, and other commercial terms of the contract, teams like legal and revenue accounting do not have to be majorly involved. However, if there is any dispute to the template contract language by the potential customer, these teams get involved.
Because revenue accounting can be directly impacted by non-standard contract terms, the revenue team is involved in most steps of contract lifecycle management; sometimes as an informed party, but often as an active contributor to process and negotiations.
Review & Negotiations
At many organizations, there is a core deal desk team that consists of legal, sales finance, and revenue accounting. This team will coordinate the contract templates as previously discussed. In addition to drafting templates, at mature organizations, the team will work through a playbook which identifies which subset of the team will need to be brought in for negotiations on which terms. For instance, sales finance would always be brought in for extension of the subscription term, renewal discussions, or discussions about commercial structure. Revenue accounting will be brought in for negotiations on terms such as termination, early cancellation, future features, and billing. It is generally the responsibility of the legal team to pull in the appropriate parties during contract negotiations, but this can also be routed in a system workflow.
Approval & Execution
Once negotiations are finalized with the customer, each contract will go through one last approval flow including sales leadership, legal, sales finance, and revenue accounting (if the negotiation resulted in a change to relevant terms). After final approvals, the contract / order form is routed for execution by a signatory of each entity. Contracts can technically be agreed upon in other ways (such as a verbal agreement), but a general rule of thumb for enterprise software companies is requirement of signature.
Once negotiations are finalized with the customer, each contract will go through one last approval flow including sales leadership, legal, sales finance, and revenue accounting (if the negotiation resulted in a change to relevant terms).
Storage, Search & Retrieval
Storage practices can vary widely at different organizations, and even internally at one organization. A mature process may require storage of all signed documents in one central repository such as Salesforce, Google Drive, a shared folder, or a document storage system; A less mature process may store MSAs in one place, and order forms in another; and an even less mature process may have executed documents spread over multiple systems.
One of the biggest problems with disparate storage practices is attempting to find specific signed documents when needed. For instance, if a revenue accountant is performing a contract review to validate revenue recognition in the system of record, they may have to pull the MSA from Google Docs, the Order Form from Salesforce, and amendments from a shared folder. Even more difficult is finding contracts with specific attributes, such as a Termination for Convenience or Acceptance Clause. Most document storage systems store the document, but do not allow for easy search and retrieval based on data within the documents.
The most mature system would allow for search and retrieval of documents based on the actual content within those documents. This would be especially valuable for revenue accountants who look for a specific subset of terms that may be revenue impacting.
Audit & Reporting
In addition to day-to-day document retrieval to follow accounting or legal policy, when auditors make sample requests to perform their testing, or management requires reporting on different attributes in customer contracts, easily finding selected documents could be difficult in a mismanaged process. Please see How to Save Time and Money in Revenue Audit for more detail on this process.
Re-negotiation / Modification
Ultimately, when the term of the contract is coming close to expiration or has expired, a new contract request can be raised, and the process starts over again. Similarly, if unfavorable terms were reached in a prior negotiation, an organization may use this natural cadence to modify the contract terms based on history between the entity and the customer. For instance, an acceptance clause may no longer make sense because the customer has been using the product for a period of time and does not require any testing.
Contact us!
Visit as at tryklarity.com to learn more about the present and future of document review automation!
