A contract is essential to making sure that any agreement has legal standing. Due to it’s significance, it is an essential part of corporate transactions involving many teams. A contract enables a smooth flow of commercial activities by enforcing the terms of an agreement legally. Contract management involves managing contracts from their creation to completion, including ensuring their execution and fulfillment, between two or more parties.
Contracts give several parties a way to cooperate and work together to accomplish a common commercial goal. By explicitly defining the duties and obligations of each person engaged, they help firms create and maintain professional relationships.
However reports suggest that 60% of contracts are not properly preserved or stored, which results in lost or void contracts. 43% of firms also lack standard guidelines for reviewing, approving, and signing contracts.
By automating processes like contract writing, approval workflows, and contract renewal reminders, contract lifecycle management software streamlines the contract management process and boosts productivity.
In this article we will explore the meaning of CLM in business, how CLM software works & which industry segments have the most to gain from integrating with a contract lifecycle management solution.
What is Contract Management?
Contract management is the process of monitoring and governing the various stages in a contract’s lifecycle and seeks to guarantee that both parties uphold their end of the bargain and that the agreement’s conditions are adhered to.
The main goals of an ideal contract management software are to reduce the risks brought on by non-compliance and to maximize financial and operational performance by monitoring adherence to contract conditions.
Typically, a contract workflow is an end-to-end procedure for moving a legal document through several steps. These are:
- Initiating: This stage of the contract involves the identification and definition of the contract objectives, requirements, and stakeholders upon request.
- Drafting: After the required details are gathered, the contract is drafted with clauses, counterparty information and critical data. CLM software provides stakeholders with access to template and clause libraries, which they can utilize to select the most appropriate options for their contracts.
- Negotiations: The agreement is shared with the other party and clause negotiation takes place. By using smart contracting software, parties can speed up the process, leaving comments and suggestions for the parties in the contract itself. This helps to decrease email clutter, and engage in real-time negotiations without meeting in-person.
- Approval: After the conditions of a contract have been fulfilled, the document is submitted for approval. This clarifies the changes made to the contract and the duties given to the parties participating in the contracting process.
- Signing: The relevant parties sign the contract to execute it and make the agreement legally valid. CLM offers electronic signature solutions where the concerned party can sign the contract online from anywhere, anytime. With eSign solutions, organizations can sign multiple contracts in one go and save significant time on contract execution.
- Performance: At this point, the parties must follow all of the contract’s terms and conditions, and failure to do so might result in financial penalties. A party is responsible for taking the steps outlined in the contract. If any of the agreed-upon terms are violated, they must take appropriate action as per the terms.
- Renewal: Even after its expiry, the contract may be reviewed or reopened for negotiation. CLM tool eases the renewal process by sending automated alerts to the concerned parties.
Manually managing contract lifecycles can cause delays in the execution of contracts since it requires several approvals and rounds of discussion after mailing the paperwork for physical signatures. Moreover, manual contracting frequently leads to missed deadlines, breach risks, and missed opportunities for significant contract renewals.
Using CLM makes it simple for businesses to develop, negotiate, review, and manage contracts, reducing the risk of disagreements, delays, and non-compliance. CLM enables collaboration between various stakeholders involved in the contract process. This helps in ensuring that contracts align with company goals and legal requirements.
What are the Challenges of Managing Contracts?
Despite the significance of contracts, managing them may be difficult, particularly when working with multiple stakeholders across the globe.
However, manually handling contracts or using antiquated technologies can result in mistakes, delays, and increased expenses, making it challenging for firms to meet their business goals and retain a competitive advantage in the marketplace.
Some common challenges while implementing a contract include understanding legal terminology, ensuring that all parties agree to the terms, and managing the negotiation and approval process.
Additionally, generating contracts may involve complex or sensitive issues that require careful consideration and strategic decision-making. Some of the more prescient challenges involved in manual contract management include:
- High Operational Costs:
Manual contract management procedures demand a lot of time, money, and labor to administer, which raises operating expenses. Organizations with bulk contracts or global operations may incur even greater costs due to manual contract governance.
- Inability to Track Contracts:
Manual contract tracking may be difficult and time-consuming since keeping track of different contract versions and their stages takes a lot of work. Moreover, it requires monitoring contract renewal dates and compliance standards, which might result in mistakes and delays.
- Excessive TAT:
With manual contract workflows, the whole process creates delays and excessive TAT. The process involves various manual steps, such as physical storage, retrieval, and review of the contracts, which can be time-consuming and prone to errors. Communication failures may also result from manual contracting.
- Lack of Visibility:
Without a contract tracker, businesses face the challenge of limited visibility into their contractual obligations. They are unable to keep an eye on the various stages of contracts that can lead to missed deadlines, increased costs, and potential legal issues.
- Missed Renewals:
Business contracts must be renewed on schedule. Due to the overwhelming amount of paperwork that employees must manage daily, there is a significant probability that they may miss the opportunity to renew crucial legacy contracts.
- Poor Storage Practices:
In a manual contracting process, the lack of proper contract storage can lead to a number of problems. This can result in lost or misplaced contracts, duplicate contracts, and difficulty in retrieving information when needed.
Contract Management Software: How Does it Work?
Smart CLM software is a solution to manage and streamline contract-related operations easier for enterprises. In addition to automating numerous contract management activities, it assists firms in creating, storing, tracking, and analyzing their contracts. This can improve compliance and lower legal risks while also saving organizations time and eliminating mistakes.
Here’s how businesses can utilize CLM in automating contract processes:
- Store contracts in a central repository that is extremely secure and has role-based security.
- Use clause and template libraries that have been pre-approved to standardize the contract language.
- Create contract agreements using those libraries, keeping track of any approvals.
- Create simple workflows to move the contract document through the necessary approval and execution processes.
- Use alerts to remind teams about crucial contract deadlines, clauses, and milestones that call for action.
- Track contract statuses and process performance using reports and dashboards to spot bottlenecks and other possibilities for improvement.
As a result of digital technologies, workflows for contract administration extensively use software tools and platforms that automate the manual processes involved, to increase accuracy and efficiency.
The steps involved in smart contract lifecycle management include:
- Contract Generation:
Template & clause libraries help legal teams draft boilerplate contracts quickly. Teams can also upload and templatize contracts, with options to create tokens and content blocks that ease document creation. Contract AI analyzes legacy contracts and offers real-time clause suggestions during the drafting process.
- Collaboration with Stakeholders:
Contract management software can help parties negotiate by providing a centralized platform for all stakeholders to access, review, and update contracts in real-time. This helps in improving communication and streamlining the contract negotiation process.
- Negotiations:
CLM software helps in negotiation by providing tools to conduct the negotiation process digitally in real-time. Negotiating parties can leave comments and suggestions wherever necessary in the contract. The other party will be notified via email and text, and
- Execution:
The contract is executed using eSignatures. Parties can invite multiple signers in parallel or sequential order, and get multiple agreements signed using digital signatures or UAE Pass integrations.
- Contract Monitoring:
CLM software enables milestone management by identifying key milestones defined in the contract, tracking progress towards those milestones, and ensuring they are met according to the contract terms. This helps project managers to stay on track and meet project goals within the specified timeframe and budget.
- Document Storage & Retrieval:
Document storage & retrieval are greatly simplified by cloud-based contract management software. CLM software offers centralized storage that ensures easy access contracts, enabling businesses to reduce the risk of misplacing important documents. In addition to that, with the facility of meta-tagging at the helm, it enables organizations to easily search and filter contracts.
- Renewal of Contracts:
An automated contract management system ensures that stakeholders receive timely notifications and reminders when contracts are up for renewal. This function greatly lowers the likelihood of missed deadlines and helps businesses to maintain relationships.
Contracts are essential to most commercial transactions and partnerships in the business world. CLM helps businesses execute a streamlined contract procedure into their organization, enabling numerous benefits.
Advantages of Using Contract Management Software
Using contract management software enables numerous business advantages in terms of process governance, expense reduction and visibility. Here’s a complete account of the benefits of contract management software.
- Cost-Effective Contracting:
Digital contract management is cost-effective as it helps to reduce legal and financial risks, minimize errors, improve efficiency, and optimize vendor relationships. Organizations save money by using contract management software to automate tedious activities, improve compliance, reduce mistakes, and provide insightful data on contract performance.
- Digital Collaboration:
The negotiation process of a contract can be concluded quickly by giving parties a virtual platform to work together, negotiations are concluded digitally without having to schedule meetings or exchange a copious amount of emails.
- Risk Reduction
Smart contract management software maintains extensive records of every edit, suggestion and comment made on an agreement. Moreover, it aids in lowering risk in terms of compliance, contract expiry, and responsibility using risk and TAT estimation algorithms.
- Improved Insights and Decision-Making
Reports are necessary for every contract to increase visibility and obtain important insights. Smart contract analytics provide executives with useful information about how the contract is being performed & the risks involved for each clause.
- Enhanced Compliance and Audits
Contract management software automates contract processes and tracks compliance, while providing a digital audit trail that improves efficiency and reduces risk for businesses.
- Streamlined Process
Contract management helps better manage the contracting process by providing a structured framework for creating, negotiating, executing, and managing contracts, with a central repository storage for all documents.
Which Industries Need Efficient Contract Management Software?
Various industries and departments deal with various contracts in their daily activities, be it legal, IT, or even HR. Here’s how businesses from various industries can leverage contract management software:
Finance:
Finance teams generally leverage contracts such as derivative contracts, security contracts, investment agreements or even employment contracts.
This industry is often marred by slow but high cost execution costs. Financial institutions can greatly benefit from adopting contract workflow solutions to automate their contract management processes.
- By enabling contract trackability, easier version control, and better document visibility while maintaining a high degree of security, CLM software becomes handy for the finance industry.
- Receiving timely status reports, approvals, reviews, and contract signings depends on seamless teamwork.
Legal:
Legal contracts generally include client engagement agreements, settlement agreements, and intellectual property agreements.
Workflows for legal contracts must allow participants to focus on value creation rather than time-consuming, repetitive procedures.
Legal staff need to routinely evaluate risks and maintain the firm’s security.
- Implementing legal contract workflow solutions expands the scope of legal departments, enabling effective knowledge sharing and avoiding specialist silos.
- The use of standardized templates and contracts promotes risk mitigation and awareness of best practices with legal compliance.
Retail:
The retail sector needs contract management software to handle contracts and agreements with suppliers, distributors, and other parties engaged in their operations.
They deal with vendor agreements, purchase agreements, leases, and also service-based contracts with expectations of quick turnarounds.
- Contract management software provides a platform for greater vendor cooperation, improved contract visibility, and risk management for overcoming these problems.
- It helps you negotiate contracts digitally and store signed contracts in a central repository. Smart analytics deliver crucial insights to improve decision-making.
Healthcare:
To establish clear norms and expectations in advance, healthcare companies need contract management software. It assists these companies in lowering the likelihood of future conflicts.
Most hospitals have three kinds of contracts – entry contracts, service contracts and concessions.
- AI-powered contract lifecycle management software enables healthcare institutions to mitigate and manage the risks created due to high-volume contracting.
- AI-assisted contract drafting, contract lifecycle tracking, centralized storage, and eSignature integrations all allow hospitals to make contracting more efficient and go paper-free.
IT:
The IT industry generally uses contracts such as fixed price contracts, cost-reimbursable contracts, time and materials contracts, and so on.
Compliance requirements with diverse data protection regimes add a layer of complexity to the challenges faced by IT businesses.
- Using pre-approved terms and document templates, contract administration software enables IT organizations to quickly produce and implement error-free papers.
- Also, the system assists in automatically reminding users when their IT product licenses need to be updated.
Operations:
The most frequent types of contracts leveraged by operations teams include service level agreements, outsourcing contracts, licensing agreements and confidentiality contracts as the main ones.
The operations team collaborates with several divisions within the company, making digital contract management crucial to smooth operation.
- Setting up an approval pipeline that provides approval responsibilities to the necessary team members is crucial to ensuring a smooth flow of approvals and tracking progress evaluations.
- The team may concentrate on high-value activities and spend less time and effort on manual, repetitive ones by using such workflow solutions to simplify all operational operations.
Human Resources:
Teams helping to manage human resources often rely on employment contracts, NDAs (non-disclosure agreements), employee benefit agreements, and separation agreements.
HR personnel spend a lot of time developing contracts and rules for new employees, present workers, departure procedures, and other tasks.
- HR contracts also require the involvement of the legal teams to approve the terms, in addition to the final approval required from the respective team members.
- As HR contracts are collaborative in nature, having a frictionless contract workflow is essential to ensuring that no team becomes the bottleneck for recruiting new personnel or creating new policies.
Manufacturing:
The manufacturing sector involves supply agreements, distribution contracts, and service level agreements. Many of these contracts coincide with the retail sector.
CLM tool helps in managing multiple contracts from creation to execution or renewal using unique templates for customized drafting. Also, it enables customized contract requests & monitor contracts on a smart dashboard.
- With contract automation software, manufacturing companies may streamline and simplify the daily contracts they must engage in.
- The program is a highly helpful tool for manufacturers since it provides easy tracking of each contract throughout its existence.
Generate Contracts Efficiently with SignDesk’s Contract Management Software
SignDesk‘s contract management software is designed to simplify and streamline the contract workflow of businesses, making it more efficient. The CLM tool is capable of enhancing various aspects of the contract management process, including:
- Creating templates:
The documents used by various industries including client & sales agreements, official documentation & internal contracts can be uploaded & templatized for easy drafting.
- Establishing automated workflows:
Leverage digital contract procedures that keep track of approvals, update review statuses, and enhance collaboration via digital processes with real-time updates.
- Employing API-integrated CLM:
Organizations can integrate UAE Pass signatures into their contract workflows to increase convenience for their customers & get contracts signed instantly.
- Capitalizing on AI systems:
Artificial Intelligence (AI) systems are utilized to assess contract performance, provide suggestions for clauses during drafting, and estimate the risks and turnaround time (TAT) for various contract touchpoints.
- Establishing a Document Repository:
Companies may store & manage all of their contracts in one place using a contract repository, making it simple to retrieve crucial contract data. By doing this, businesses may increase visibility, foster collaboration, and lower their chance of missing crucial deadlines or responsibilities.
- Tracking and Observing Analytics:
Businesses can manage risk, enhance compliance, and make sure that contracts are accomplishing their intended aims and objectives by offering real-time visibility into contract status.
- Timely Renewal Reminders:
To keep track of important contract renewal dates, use process automation to set up personalized renewal reminders. The appropriate stakeholders will get an automatic reminder email notifying them that the contract is about to expire once the reminder is set for a specific date.
Over the years, contracts have emerged as one of the most important aspects of businesses between organizations and industries. Contract management software may improve client satisfaction and loyalty by helping businesses fulfill contracts and services more effectively.
By streamlining contract operations, lowering risks and mistakes, and improving business ties, contract management software helps businesses save time and money while maximizing their income.
SignDesk’s contract management software digitizes paperwork, automates activities, keeps track of deadlines, and offers insights for smart risk management and decision-making.
Schedule a free demo with our solution consultants to learn more.
