Contract Approval Process: Steps, Roles, and How to Automate It

The contract approval process is the series of steps an organization follows to review, authorize, and finalize a contract before it is signed. It determines who needs to evaluate a contract, what criteria they apply, and in what order those evaluations happen.

Every organization has an approval process, whether it is formalized or not. In some companies, it is a structured workflow with defined routing rules and escalation paths. In others, it is an informal chain of emails and Slack messages that varies from deal to deal. The difference between these two approaches has a measurable impact on speed, compliance, and revenue recognition.

Research from the World Commerce & Contracting association (formerly IACCM) found that the average contract takes 3.4 weeks to move from draft to signature. A significant portion of that delay occurs during internal approval, not during negotiation with the counterparty. Contracts sit in inboxes, get forwarded to the wrong person, or stall because no one knows whose turn it is to review.

This guide breaks down the contract approval process into its component steps, explains the roles involved, identifies the most common causes of delay, and covers how automation can compress approval timelines from weeks to days.

The Contract Approval Process: Step by Step

While organizations customize their workflows based on industry, contract type, and risk tolerance, most follow a version of the same fundamental sequence.

Each step has a specific purpose, and skipping or poorly executing any one of them introduces risk. Here is what happens at each stage.

1. Contract Request

The process begins when a business unit identifies the need for a contract. A salesperson closes a verbal agreement and needs a service contract. A procurement manager selects a vendor and needs a purchase agreement. A hiring manager extends an offer and needs an employment contract.

In mature organizations, this step involves a structured intake form that captures the essential details: contract type, parties involved, estimated value, key terms, and timeline. The intake form serves a dual purpose. It gives the drafting team the information they need to create the contract, and it captures the metadata needed to route the contract through the correct approval chain.

Without a structured request process, legal and contract teams spend significant time going back and forth to collect missing information before they can even begin drafting.

2. Contract Drafting

Once the request is submitted and the necessary details are collected, the contract is drafted. This step involves selecting the appropriate template, inserting deal-specific terms, and producing a first draft that reflects the business intent behind the agreement.

The drafting stage has a direct relationship with approval speed. Contracts drafted from approved, standardized templates move through approval faster because reviewers know the baseline language is pre-vetted. Contracts drafted from scratch or based on the counterparty's paper require more scrutiny and longer review cycles.

Organizations that maintain a current, well-organized contract template library consistently see shorter drafting and approval cycles. Some modern CLM tools, including Bind, use AI to generate first drafts from natural language descriptions, further reducing the time between request and a reviewable draft.

3. Internal Review

Before a contract goes to the counterparty, it undergoes internal review. The purpose of this step is to confirm that the contract accurately reflects the agreed-upon deal terms and complies with organizational policies.

Internal review typically involves the contract owner (often the business lead who initiated the request) and one or more subject matter experts depending on the contract type. A sales contract might require review by a sales manager and a finance lead. A vendor agreement might involve procurement and information security.

The key distinction between internal review and the later legal review step is focus. Internal review focuses on commercial accuracy: Are the terms correct? Does the pricing match what was agreed? Are the deliverables accurately described? Legal review, which comes later, focuses on risk and enforceability.

4. Negotiation

In many workflows, the contract goes to the counterparty for review after passing initial internal checks. The counterparty may propose changes, triggering a negotiation cycle. Redlines go back and forth until both parties reach acceptable terms.

Negotiation is often the most time-consuming phase of the contract lifecycle, and AI-assisted negotiation tools are increasingly used to accelerate it. It is also the least controllable, because it depends on the counterparty's responsiveness and internal processes. However, the approval process plays a role here too: when the counterparty proposes changes, those changes often need to be reviewed and approved internally before the organization can respond.

Organizations that have pre-approved fallback positions for common negotiation points (for example, "we prefer a 30-day payment term, but can accept up to 45 days without escalation") can respond to counterparty redlines faster because each response does not require a new round of internal approval.

5. Legal Review

Legal review is the stage where in-house counsel or an external legal advisor examines the contract for legal risk, regulatory compliance, and enforceability. Legal reviewers focus on indemnification clauses, limitation of liability, intellectual property rights, termination provisions, governing law, and any terms that create unusual obligations for the organization.

Not every contract requires legal review. Many organizations define thresholds: contracts below a certain value or using a fully standard template may skip legal review entirely, while contracts above the threshold or with non-standard terms require it. This tiered approach prevents the legal team from becoming a bottleneck on routine, low-risk agreements. See how Bind supports in-house legal teams with self-service contract creation that keeps legal in control through playbook enforcement.

When legal review is required, the reviewer typically produces a set of recommendations: approve as-is, approve with specific changes, or reject. If changes are needed, the contract cycles back to negotiation before returning for approval.

6. Final Approval

Final approval is the formal sign-off that authorizes the contract for execution. Depending on the organization's approval matrix, this may involve one person or several. A contract under $50,000 might require only a department head's approval. A contract over $500,000 might require sign-off from the CFO and the general counsel.

The approval matrix (sometimes called a delegation of authority matrix) is a document that specifies who has the authority to approve contracts of various types and values. Maintaining an up-to-date approval matrix is one of the most important governance steps an organization can take. Without one, approval routing becomes ad hoc, leading to delays as people try to figure out who needs to sign off.

7. Signature

Once all approvals are obtained, the contract is ready for execution. The final signatory applies their signature, and the contract is sent to the counterparty for countersignature. In most modern organizations, this happens electronically through an e-signature platform.

The signature step itself is straightforward, but it can introduce delay if the signing authority is unavailable or if the organization uses a separate e-signature tool that requires manual export, upload, and configuration. Platforms that integrate e-signatures into the contract workflow eliminate this friction.

8. Filing and Storage

After both parties have signed, the executed contract needs to be filed in a central repository where it is searchable, accessible to authorized users, and linked to the relevant metadata (parties, dates, values, obligations, renewal terms).

Filing is often treated as an afterthought, but it is essential for the ongoing management of the contract. An improperly filed contract is a contract that will be difficult to find when a dispute arises, a renewal date approaches, or an audit requires documentation.

Key Roles in Contract Approval

A clear understanding of who participates in the approval process, and what each person is responsible for, prevents confusion and reduces delays. These are the standard roles involved in most contract approval workflows.

Requestor

The person or team that initiates the contract request. In most cases, this is a business user: a salesperson, a hiring manager, a procurement specialist, or a project manager. The requestor is responsible for providing accurate deal details during intake and answering questions from reviewers about the business context.

Contract Owner

The individual with overall accountability for a specific contract from initiation through execution. The contract owner is often the requestor's manager or a designated contract administrator. They ensure the contract moves through each stage on time, resolve internal disagreements about terms, and serve as the primary point of contact for status inquiries.

Legal Reviewer

An in-house attorney or external legal advisor who evaluates the contract for legal risk and compliance. The legal reviewer's approval (or recommendation for changes) is required for contracts that exceed risk thresholds or contain non-standard terms. In smaller organizations without in-house counsel, this role may be filled by an external law firm or a senior executive with legal training.

Business Approver

A stakeholder from the relevant business unit (sales, operations, procurement) who confirms that the contract terms align with the commercial intent of the deal. The business approver verifies pricing, deliverables, timelines, and service levels. Their approval confirms that the contract accurately reflects what was negotiated.

Finance and Procurement

For contracts with significant financial implications, finance and procurement teams review payment terms, budget allocation, and vendor compliance. Finance may verify that the contract value fits within the approved budget. Procurement may confirm that the vendor has passed qualification checks and that the terms meet purchasing policy requirements.

Final Signatory

The person authorized to execute the contract on behalf of the organization. The signatory's authority is defined by the organization's delegation of authority matrix and may be limited by contract type, value, or risk level. In many companies, only a handful of executives have unrestricted signing authority.

Common Bottlenecks in the Approval Process

Even organizations with a defined approval process experience delays. The following bottlenecks account for the majority of wasted time.

Unclear Ownership

When no single person is accountable for moving a contract through the approval process, contracts stall. The requestor assumes legal is handling it. Legal assumes the business team is making changes. Nobody follows up because nobody owns the timeline. According to a 2023 Deloitte study on contract management practices, unclear role definition is among the top three causes of approval delays in mid-market and enterprise organizations.

Sequential Reviews When Parallel Reviews Are Possible

Many organizations route contracts through a linear sequence: business review, then legal, then finance, then the signatory. But in many cases, these reviews could happen simultaneously. The legal reviewer does not need the finance team's input to assess indemnification clauses, and finance does not need the legal opinion to verify budget allocation. Parallel reviews can cut days or weeks from the timeline without sacrificing thoroughness.

No Visibility into Status

Without a centralized system, there is no easy way to answer the question "where is this contract?" The requestor emails the contract owner. The contract owner emails legal. Legal checks their inbox. Nobody has a real-time view of which step the contract is on, who is responsible for the next action, or how long it has been waiting. This lack of transparency makes it impossible to identify delays until they have already caused harm.

Manual Handoffs Between Systems

In many organizations, contracts move between multiple tools during the approval process. The draft lives in Word. Comments happen in email. Approvals are tracked in a spreadsheet. Signatures happen in a separate e-signature platform. Each handoff introduces delay (time to export, upload, configure) and risk (wrong version sent, approval not recorded, signed copy misfiled).

Approval Authority Confusion

When the approval matrix is outdated, informal, or nonexistent, people waste time trying to determine who has the authority to approve a specific contract. Questions like "Does this need the VP's sign-off or just the director's?" and "Does legal need to review all vendor agreements or just the ones above $25,000?" consume time and create unnecessary escalation loops.

Manual vs. Automated Approval Processes

The contrast between manual and automated approval is significant across every dimension that matters: speed, consistency, visibility, and compliance.

The advantages of automation are not theoretical. A 2024 study by Ernst & Young found that organizations using automated contract workflows reduced their average approval cycle by 50% to 70% compared to manual processes. The improvements came from three sources: eliminating manual handoffs, enabling parallel reviews, and reducing the time contracts spend waiting in someone's inbox.

How to Automate Contract Approvals

Automating the approval process does not mean removing human judgment. It means removing the manual coordination that slows human judgment down. Here are the specific mechanisms that modern contract management platforms use to accelerate approvals.

Approval Rules and Routing Logic

Automated approval starts with defining rules that determine who needs to approve a contract and under what conditions. These rules are typically based on contract type (NDAs route to legal, procurement agreements route to procurement and legal), contract value (contracts under $10,000 require one approval, contracts over $100,000 require three), risk level (standard template contracts auto-approve, non-standard terms trigger legal review), and business unit (each department has its own approval chain).

Once these rules are configured, the system routes each contract automatically. No one needs to read the contract and decide where to send it. The routing logic handles that based on the metadata captured during intake.

Conditional Routing

Conditional routing takes approval rules a step further by creating branching paths. Instead of a fixed sequence, the system evaluates contract attributes and routes accordingly. For example, a standard NDA using the approved template might skip legal review entirely and go directly to the department head for approval. The same NDA with modified confidentiality terms might route to legal first. A non-standard agreement from a counterparty's template might require both legal and compliance review.

Conditional routing ensures that high-risk contracts get the scrutiny they need while low-risk, routine contracts move through the process quickly. This prevents the legal team from becoming a bottleneck on agreements that do not require their attention.

Parallel Reviews

Automated systems can send a contract to multiple reviewers simultaneously when their reviews are independent. Legal can assess risk while finance reviews payment terms and the business approver confirms deal accuracy. All three reviews happen in parallel rather than in sequence.

The time savings from parallel reviews alone can be dramatic. If each reviewer takes two business days and there are three reviewers, a sequential process takes six business days. Parallel review takes two. That is a four-day reduction on a single contract.

Automated Reminders and Escalations

When a contract is waiting for someone's approval, automated reminders eliminate the need for manual follow-up. A typical configuration might send a first reminder after 24 hours, a second reminder after 48 hours, and an escalation to the reviewer's manager after 72 hours.

These reminders are simple to configure but disproportionately effective. Contracts often stall not because the reviewer objects to the terms, but because the email got buried. A timely nudge is frequently all that is needed.

Audit Trails

Automated approval systems record every action taken on a contract: who viewed it, when they approved or rejected it, what comments they made, and how long each step took. This audit trail serves two purposes.

First, it provides compliance documentation. In regulated industries (financial services, healthcare, government contracting), organizations must be able to demonstrate that contracts went through an appropriate approval process. A complete, automatically generated audit trail satisfies this requirement without any additional effort.

Second, it provides operational intelligence. By analyzing approval data across hundreds of contracts, organizations can identify patterns: which steps take the longest, which reviewers are consistently delayed, and which contract types cause the most back-and-forth. This data informs process improvements.

Integration with Existing Tools

Approval automation is most effective when it integrates with the tools teams already use. Notifications delivered through Slack or Microsoft Teams reach reviewers faster than emails. CRM integrations (Salesforce, HubSpot) allow sales teams to track contract status without leaving their workflow. Calendar integrations help signatories schedule time for review.

Platforms like Bind combine automated approval workflows with AI-powered drafting and built-in e-signatures, eliminating the system-hopping that creates manual handoffs in the first place.

Best Practices for Contract Approvals

These practices are drawn from research by the World Commerce & Contracting association, Deloitte, and the operational experience of organizations that have successfully reduced their approval cycles.

1. Document Your Approval Matrix

Create a formal, written delegation of authority that specifies who can approve which contract types at which value thresholds. Review and update it annually, or whenever organizational structure changes. An outdated approval matrix is almost as problematic as not having one at all.

2. Tier Your Contracts by Risk

Not every contract needs the same level of scrutiny. Define tiers (for example: standard, moderate, high-risk) and assign different approval requirements to each tier. Standard contracts using approved templates with values below a defined threshold should have a streamlined path. High-value or non-standard contracts should receive more rigorous review. This prevents low-risk agreements from clogging the same pipeline as complex deals.

3. Enable Parallel Reviews Wherever Possible

Audit your current approval workflow and identify steps that happen sequentially but could happen in parallel. If legal review and finance review are independent, run them concurrently. The adjustment is simple but the cumulative time savings are significant.

4. Set and Enforce SLAs for Each Approval Stage

Define service-level agreements for how long each review step should take. For example: business review within two business days, legal review within three business days, final approval within one business day. Make these SLAs visible and track adherence. Without defined expectations, there is no way to distinguish between an acceptable review timeline and an unreasonable delay.

5. Standardize Templates to Reduce Review Burden

The more standardized your contract templates are, the faster they move through approval. When reviewers know that a standard template has already been vetted by legal, they can focus their review on the deal-specific terms rather than re-reading boilerplate language. Invest in maintaining a current, comprehensive template library.

6. Conduct Quarterly Process Reviews

Approval processes degrade over time as the organization changes. New products create new contract types. Team restructuring changes who should approve what. Quarterly reviews of your approval workflow, supported by data from your audit trail, help you identify emerging bottlenecks and adapt before they become chronic problems.

Organizations that implement these practices consistently report that standardized, lower-risk contracts move from draft to signature in one to three business days. That is a dramatic improvement from the 3.4-week industry average, and it is achievable without cutting corners on review quality.

Measuring Approval Process Performance

You cannot improve what you do not measure. For a comprehensive look at which KPIs to track and how to build actionable dashboards, see our guide on contract management reporting. These are the key metrics for evaluating and optimizing your contract approval process.

Cycle Time by Stage

Track how long contracts spend at each stage of the approval process. This reveals where delays actually occur. Many organizations assume that legal review is their primary bottleneck, only to discover that contracts spend more time waiting for business approval or sitting in the final signatory's inbox.

Approval Turnaround Time

Measure the elapsed time from when a contract is submitted for approval to when all required approvals are obtained. Track this metric at the individual reviewer level and the overall process level. If one reviewer consistently takes twice as long as others, that is a coaching or workload issue worth addressing.

First-Pass Approval Rate

Track the percentage of contracts that are approved on the first pass without being sent back for changes. A low first-pass rate may indicate problems upstream: incomplete intake forms, outdated templates, or insufficient guidance for contract requestors. Improving the quality of what enters the approval process reduces rework and shortens cycle times.

Contracts Pending Approval

Monitor the number of contracts waiting for approval at any given time. A growing backlog indicates that the approval process is not keeping pace with contract volume. This metric is a leading indicator: it warns you about delays before they affect revenue.

Frequently Asked Questions

How long should contract approval take?

The appropriate timeline depends on the complexity and risk level of the contract. For standardized, low-risk agreements (NDAs, standard service agreements using approved templates), approval should take one to three business days. For moderate-complexity contracts with some non-standard terms, three to five business days is a reasonable target. Complex, high-value, or highly negotiated agreements may require one to two weeks. The 3.4-week industry average reported by IACCM represents organizations that have not optimized their processes. With defined workflows, tiered review, and automation, most organizations can significantly outperform that benchmark.

Who should approve contracts?

The answer depends on your organization's risk tolerance, industry, and regulatory requirements. At minimum, the business stakeholder who owns the relationship (to confirm commercial accuracy) and someone with appropriate signing authority (as defined by the delegation of authority matrix) should approve every contract. Legal review should be required for contracts above a defined risk or value threshold, and finance review should be required for contracts with significant financial commitments. The guiding principle is that the number of approvers should be proportional to the risk. Adding unnecessary approvers to low-risk contracts slows everything down without adding value.

What is conditional approval routing?

Conditional approval routing is a workflow configuration that sends contracts through different approval paths based on their attributes. Instead of routing every contract through the same sequence of reviewers, the system evaluates factors like contract type, value, risk level, and whether the contract uses a standard template, then routes it accordingly. A standard NDA might require only a department head's approval. A non-standard vendor agreement worth $200,000 might require review by legal, procurement, finance, and a VP. Conditional routing ensures that simple contracts move fast while complex contracts get appropriate oversight.

Can you automate contract approvals without losing control?

Yes. Automated approval does not mean unattended approval. It means that the rules governing who reviews what, under which conditions, and in what order are codified in the system rather than left to ad hoc decisions. Every approval is still made by a human. Automation handles the routing, reminders, escalations, and record-keeping. In practice, automated systems often provide more control than manual processes because they enforce the approval matrix consistently. In a manual process, someone might skip a required approval step or route a contract to the wrong person. An automated system follows the defined rules every time and creates an audit trail that proves compliance.

What tools support automated contract approvals?

Most modern contract lifecycle management (CLM) platforms include approval workflow automation. Enterprise tools like Ironclad, Agiloft, and DocuSign CLM offer highly configurable approval workflows suited to large organizations with complex routing needs. Mid-market tools like Bind, Juro, and SpotDraft offer approval automation alongside AI-powered drafting and review capabilities. The right choice depends on your organization's size, contract volume, budget, and integration requirements. For a detailed comparison, see our CLM Software Pricing Guide.

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