What is an executed contract?
Contract execution is a critical stage of the negotiation process. At this point, you will have had back-and-forth negotiations and have decided on a final agreement. Now it is time to sign and finalize the contract, meaning you want to ensure you caught everything, that nothing is missing, and that all necessary parties have approved the agreement. Contract execution is the most important step in the contract management process.
Because this step is so important, you should know the answer to the question: “What is an executed contract?” We can help you answer this question and learn how to effectively manage this critical stage.
What is an executed contract?
An executed contract is a finalized agreement that has passed the sign stage and been agreed to by all necessary parties. The agreement is now effective and enforceable. The executed agreement creates a contractual relationship between two or more parties and each must now fulfill the legal obligations they agreed upon in the written agreement.
Others may use the term “executed contract” to refer to one that has not only been signed, but has also been completed. If all of the obligations of the contract have now been fulfilled, many people will refer to this as an executed contract.
This may also be referred to as a “fully executed” contract to differentiate it from an agreement that has simply been signed and finalized. This definition is also valid, and it is common to hear this phrase used in either situation.
Why is an executed contract so important?
You have worked hard and now it is time to make sure the contract is finalized. This nerve-wracking step can be made simpler and more effective with digital contracting software. There is a lot at stake if you fail to properly execute a contract, so it is crucial to cross every “t” and dot every “i.”
If you fail to properly execute a contract, several issues may arise:
- Unenforceable contracts: A contract that is not properly finalized is likely to be ineffective and unenforceable. If this is the case, you will not be able to enforce the agreement in court. Your hard work putting the contract together will all be for naught if you fail to properly execute the contract. This can result in a significant loss of resources, lost value of the deal, and high litigation costs.
- Contract ambiguity: A successfully executed contract uses clear language that does not confuse readers. Any lack of clarity about contract terms may result in litigation or an unenforceable agreement. It could also create costly delays or frustration with business partners.
- Delays: Time is money for your business. The longer the contract execution stage takes, the more money is wasted. Effective contract management streamlines this process to avoid unnecessary delays and accelerate the benefit of the bargain.
Definition of execution date
The execution date is the date the contract is signed and finalized with every necessary party. Once the agreement is signed and there is nothing left to do to it, the agreement is complete.
The execution date may be different than the “effective date.” The effective date occurs when the legal obligations of the contract begin. The effective date may be the date the contract was signed or it may be some later date specified in the agreement.
Understanding the difference between the execution date and the effective date is critical. While many contracts are immediately effective when finalized, many others are not. Your business needs to easily track when these dates occurred to understand your rights and obligations.
Businesses commonly struggle to easily ascertain these dates without sending contracts to Legal for review. With modern contract lifecycle management software, the technology identifies these key dates for you, allowing you to easily track and identify both execution dates and effective dates of executed contracts.
Considerations before executing an agreement
While business moves quickly, you need to make sure your agreement is correct before moving to the execution stage. Once an agreement is signed, it may be immediately enforceable. You do not want to make mistakes that could be easily avoided. Keep reading for a few helpful tips that can help you avoid common problems with executed contracts.
Understand all contract terms
Once you sign an agreement, you are likely bound to its terms, which is why you must understand the terms of the contract and what they mean practically for your business. You should double- or triple-check important items like dates, prices, specifications, or more. You want to ensure the other party has included all of its obligations that you have talked about. Make sure everything has been put in writing if you expect to enforce it.
Have Legal review new terms
Many deals use form contracts that Legal has already approved. If you need to change this language to fit a deal, it is important to have your Legal team or qualified counsel approve it.
Identify who needs to sign
Identify who in the organization is required to sign an enforceable agreement. This is important both for your business and to identify the proper counterparty to sign the agreement. In most cases, deals with business organizations require authorized officers or agents to sign a contract. Make sure everyone who signs is authorized to do so and has the legal authority to bind themselves or the business.
Use an effective signature method
Depending on the type of contract, there are various ways to sign an agreement. Traditional wet signatures occur when a person puts pen to paper to sign the agreement. In today’s fast-paced business world, this is often time-consuming and not the best method to handle the situation.
Click-to-accept methods like clickwrap agreements allow you to handle high-volume agreements that require little to no negotiation. You can streamline and accelerate online agreements to improve your contract management processes.
After the contract is executed
Contract execution is not the final stage of this new business arrangement. You have a finalized agreement—now it is time to act on it. You need to fulfill your obligations and ensure the counterparty fulfills theirs. This ensures you receive the full benefit of your agreement and continue to grow your business for years to come.
For many companies, this is about it after the contract is finished. They do not have access to metrics, contract data reporting, or recommendations to help streamline their contracting processes. Modern contract management software gives your company the tools to evaluate the deals already made to streamline and improve deals moving forward.
Analysis of executed contracts
In the analysis stage, you can collect and review metadata from your executed contracts. You can store your contract in a Data Repository that helps you unlock an agreement’s information. It lets you quickly answer questions about contracts and gives you one reliable place to search for them. You no longer have to dig through dusty filing cabinets or hard-to-navigate spreadsheets to identify a contract.
Using the Ironclad software, you can even use contract data extraction for legacy contracts. Your business has built up an incredible amount of institutional memory that may seem lost in past paper contracts or out-of-date electronic contracts. Contract data analysts can unlock this information to provide you with real-world insights into your existing agreements as well as your future ones.
Optimizing executed contracts
Now that you have analyzed all the data, it is time to put it to work. This data paints a picture of where you were effective and where you need improvements. Using these powerful tools, you can now optimize your contracting processes to increase efficiency and drive your business.
With Ironclad, you get intelligent alerts, cross-system integrations, and process automation that lets you continue to improve the contract lifecycle. You can identify opportunities for growth and areas in which you can save time and resources.
Renew executed contracts
You put a lot of work into executing your original contract. This time and effort do not have to be wasted. During the contract renewal stage, you will decide whether you want to renew the contract. Your business will base this decision on the analysis you performed before. Did the deal yield good results? Is there anything you need to change to improve this deal?
Contract management software gives you the insights needed to make this decision. Additionally, it creates alerts for upcoming renewals so you can stay on top of any additional actions you may need to take.
Contract renewals can be incredibly valuable if you use them correctly. Too many companies miss their chance for renewal because they:
- Lack a centralized depository
- Lack an effective way to track contracts
- Lose contracts
- Fail to use metadata to make informed decisions
Unleash the power of contract management for your executed contracts
An executed contract is the final stage of the negotiation process, but not the last stage of the contract lifecycle. With the right tools, you can effectively manage, track, and optimize your executed contracts to continue improving your business model.