Contract Management is Changing. Is Your Business Falling Behind?
As business evolves quickly, so too do the contracts we use to govern our relationships. Vendors and customers alike are demanding personalized contracts and the ability to manage them through self-service contract management. And pain points remain for arduous parts of the contracting process, like approvals, clause management, and workflow. 33% of businesses say a typical contract takes 30 or more hours to negotiate, so the benefits are clear for speeding this part of the process.
Effective contract management is a complex process of wrangling stakeholders, preparing a playbook or clause bank, having a contract repository and contract register, monitoring contract performance (usually with a specific owner and milestones), and auditing. The typical process includes:
Your sales team or the customer makes a request for a contract. The request will usually include some details, like what will be provided and its agreed cost.
Reviewing and redlining
The process begins with the customer reviewing the contract you have drafted, and often involves multiple people in an organization, including legal teams. It can take any number of forms but frequently involves teams marking up documents with suggested changes and sending them back to the point of contact at your organization. Good process on both sides is vital to make sure all changes are captured and vetted appropriately.
Once the contract is satisfactory on both sides, it will be approved. It’s a very exciting stage of the process but it’s important to get it right. Many businesses find it challenging to make sure all elements of a contract are signed, and electronic signature software varies in how it performs. Adobe reports that LeasePlan reduced its average contract turnaround time by 83 percent by implementing an eSignature system. Once your contract is signed, sealed and delivered, take a moment to celebrate – you’re in business! But remember, there is so much more to do!
This is where the rubber hits the road, and a smooth internal handover is vital. You can trust your teams to deliver on the promise of the contract but only if they know exactly what they need to do. Personalized contracts make this especially complicated, especially when its common business practice to simply email a signed contract to another part of the team and ask for fulfillment. Best practices are for your contract execution process to integrate with the rest of your workflow.
Where do you keep your contracts after they have been signed? Records management, search, and retrieval are becoming a giant headache for businesses that are relying on storing individual documents in on-premises or cloud servers. According to Aberdeen Marketspace, leading organizations have more than 75 percent of their contracts in a searchable repository compared to all others, who have about a third.
Audit and reporting
When reports need to be run and audits taken, that findability becomes more than just a convenience.
Renewal and disposition
And then at the end of the contract, you have to do it all again! Some contracts will be renewed as is with no changes, but those circumstances are diminishing as businesses evolve their priorities and workflows, and the legal framework shifts. Having a thoughtful plan for renewal will help your business get on the front foot long before the contract is up, which will increase your chances of renewal.
Why Does Contract Management Take So Long?
Some days, being a Contract Manager feels like juggling swords. You’re managing multiple negotiations at once while integrating requested revisions, following up on negotiated but unsigned documents, and working around siloed teams in your own organization as well as your customers’.
Some delays are unavoidable, like waiting for customers to make revisions, but others can be curbed by adopting better processes around:
- Storage – of both contracts and the clauses that are commonly used in them,
- Access permissions – so that only the right people are making decisions on key parts of the contract, like your legal team,
- The technology interface – if your systems are hard to use, your teams will not use them,
- Integration – to make sure everyone is on the same page, whether they are in charge of sales, contract management, and fulfilment.
The costs of these delays are huge. According to DocuSign, 65 percent of businesses report that poor contract management caused deal-closing delays, and a further 37 percent reported increased cost. Almost a third said they lost revenue due to the time it took to sign on the dotted line, and about the same said it created a poor experience for their customers. Most concerning was that 22 percent said poor contract management increased their risk as a company.
So it’s clear by now that contract management is complex and getting more so, that many businesses are struggling to get a handle on their contract production, workflows, and storage, and that the cost of poor contract management are enormous. The solution is to integrate a powerful tool that manages contract production, negotiation, storage, and auditing, while integrating with your customer database for fulfilment and keeping your data safe.
Benefits of a Contract Lifecycle Management Tool
Leading organizations have found that investing in a purpose-built tool can increase efficiency and nix some of the risks associated with contract management. With more customers and vendors demanding individualized contracts, every human touch is an opportunity for error.
Contract Lifecycle Management tools perform the following functions:
- Creates a unified, searchable space for recording actions and communications about all contract functions,
- Standardizes and manages workflows across the whole contract lifecycle, including approval workflow,
- negotiation, storage, fulfillment, and renegotiation,
- Stores a rich library of content, including approved clauses,
- Manages staff access in line with timeline, role, or capability,
- Enables automation to streamline operations, reduce risk, speed time-to-sign, and free up staff for higher-level tasks.
“Contracts are at the core of B2B relationships, and contract lifecycle management software helps firms create and negotiate new contracts, manage individual contract compliance, and understand the risks, obligations, and entitlements in the contract portfolio,” Forrester said in its 2018 review of CLM tools.
Leading businesses use CLM software to manage contracts faster and more efficiently. They also renewed 56% of the contracts annually, compared with 25%. Adoption of a CLM is a key aspect of the contract management maturity model, which reinforces the benefits of managed workflows for value creation.
Benefit 1: Findability and reporting
By creating a central repository for all contracts, a CLM ensures that everyone who should have access can see a single source of truth. Searching in even the most organized file storage systems can serve up an earlier file iteration, an unsigned copy or old renewals. All contribute to time wasted and potential for error, according to Forrester Wave’s CLM Report. A CLM with Full-text search capabilities is especially important for small to medium-sized businesses because there is less likely to be a single manager or team responsible for the account so it’s easier for vital documents and conversations to go missing.
That findability can be a huge boon for SMBs who want to understand their contract load and patterns across time. Reporting and analytics tools come standard with most CLM software, and some integrate with AI tools to give you deep insights about your whole operation and how contact handling impacted the project’s success.
Benefit 2: Compliance
One key benefit of having a centralized place for contracts is that it takes the heartache out of compliance with audits and other governance procedures. You can find all the contacts and all associated workflow, actions, and communications history by simply setting appropriate filters. You can see how the contract evolved through the negotiation process and who was involved.
Forrester Wave also recommended CLMs for their ability to manage clause libraries of legally approved language. Using a library instead of cutting and pasting from other documents means you can always feel secure that you’re using approved contract language that is up to date and relevant to the contract you’re producing.
Benefit 3: Manage across the whole company and the whole lifecycle
For a company to be successful, contracts must be an integrated part of the whole sales lifecycle. By implementing a CLM tool, you can set up workflows that are best for your company and its work and ensure there are never any more bad hand-overs. Choose a tool with built-in task management across the entire organization – from IT, legal, operations, sales, finance, and HR.
Integrating your transaction systems can take your contract management to even greater heights, automating common tasks like purchasing, ordering, and invoicing. Fewer manual touches mean fewer balls dropped, more efficient fulfillment and happier customers.
Benefit 4: Reduced risk
Did you know that 80 percent of civil litigation in the US is related to contracts? That figure, from the National Center for State Courts, is due to what contract management experts call “contract leakage,” or the result of poor contract management. With an estimated one-third of corporate profits being spent on litigation, Bloomberg Law says the problem was widespread and dire.
“The proliferation of unstructured text and changing legal and regulatory landscapes are putting ever more pressure on already-strapped legal departments to balance business-critical needs with time-consuming—yet essential—tedious routines. Automating rote processes guarantees legal teams handle documents securely and efficiently,” AI strategist Jason Gabbard said.
With a Contract Lifecycle Management tool, more tasks can be shifted to automated workflows from humans, which let’s face it, are fallible. Docusign reports that 94 percent of its respondents said human error impacted the contract process.
Benefit 5: Integrations
Leading companies across industries are unshackling themselves from using discrete tools and instead choosing tools that integrate seamlessly for stronger workflows and increased visibility across their business. Some CLM tools integrate with customer databases like Salesforce, Netsuite, Oracle CRM, and others, to create workflows across the customer lifecycle that can connect contract management actions like signing with fulfillment triggers.
Benefit 6: Easy to use
Recent improvements to user experience mean that CLMs are much easier to use than ever before, and are therefore taking over more of the market, according to Forrester. One of the real joys of CLM software is its ability to take the pain out of the signing process with built-in eSignature functionality. And unlike Hello Sign and similar, those signatures are automatically integrated into the contract database and can be used to trigger automatic workflows.
How to succeed with a CLM
Build smart tagging and naming conventions
The ease of tagging improves the use of the software and its performance, which is a virtuous cycle. The more data in the tool, the better it serves your business. Consider implementing machine learning for common contract revisions – that will mean that once a new clause is approved once by your legal team, it will thereafter be approved by machine. Tag automatically on intake to reduce manual tagging time and the semantics problems caused when people have different words for the same thing. Consider a tool with built-in OCR so your paper contracts are immediately full-text searchable.
Actively manage your clauses. Having approved templates and clauses at their fingertips help contract managers create new contracts faster and slash the risk that they will deviate from approved language.
Set permissions and roles
Every editable contract draft is an opportunity for error. Set role-based access control so employees can only access the information necessary to perform their job. In CLM software, you can designate particular permissions to groups and assign roles to those groups. That way, someone on your legal team has permission to edit and approve clauses but maybe doesn’t have financial history information. Likewise, your sales account executive might have purchasing history but only access to approved clauses
Set up triggers so when a certain threshold is satisfied, something else happens – usually the creation of a new task. In your CLM, you can set up workflows for common tasks, including:
- Starting a negotiation phase: Create multiple tasks, timelines, and items that need to be created including the contract itself.
- Landed contract handoff: Set up a trigger so that when the contract comes back signed, relevant fulfillment teams are immediately notified and tasks are set up for them.
Engage record management tools to share work effectively
A CLM doesn’t just manage contracts but everything that happens to them once they’re initiated. Set up solid internal protocols so that teams can easily see what stage a contract is at and act accordingly.
How to Choose the CLM for Your Business
There are more than 30 vendors in the CLM software market. Forrester’s 2018 Contract Lifecycle Management report has the following recommendations for businesses seeking a new CLM partner:
- Find out what your most important contract needs are. CLMs have different value propositions for the various needs of businesses.
- The size of the vendor is less important in the fast-growing, rapidly evolving CLM market.
- Try to find one CLM vendor for all contracts but be open to two or more. While there are benefits to having one CLM for all contracts, including a central repository and workspace, some companies will want to integrate with disparate tools like eSourcing, sales CRMs, and revenue management tools.
Anapact was born of real contract manager experience – one redline too many, as we say. We decided to build this tool specifically to help small- to medium-sized businesses find a tool that can serve their needs better than their current mix of eSignature and document storage systems. If contract efficiency is important to your company, get a demo of Anapact today.