6 benefits of contract management software
- Last Updated: September 24, 2021
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- 6 Min Read
Contracts are critical components of any business, irrespective of the domain. They govern almost every dollar that enters or leaves a company. A well-crafted contract management process can help businesses manage commercial relationships better and avoid disputes and litigation.
Traditionally, most businesses manage contracts through manual, disconnected processes, often having to juggle multiple applications. This manual approach is prone to human error and exposes businesses to several threats costing them time, money, and reputation.
The global business landscape has evolved to a point where business models and corresponding regulations are requiring more time and attention than ever. And with the increased emphasis on compliance across all verticals, contracts are becoming more dynamic and contract management more complex. This current scenario demands modern contract lifecycle management (CLM) systems that can help businesses align their legal operations to their business goals.
The solution? A holistic contract management system (CMS), which automates the complete contract lifecycle from initiation through award, compliance, and renewal. If you've noticed the increasing trend of modern businesses adopting CLM software and wonder what benefits are driving this change, read on!
Accelerated contract authoring
Contracts are legally binding, so their contents need to be clear, concise, and accurate.
Modern CLM solutions enable admins to build contract templates using a clause library with pre-approved language. By leveraging the power of pre-approved contract clauses and templates, even a user without any legal expertise can quickly draft contracts by including the required field values, choosing the clause language, and making minor tweaks to suit the current engagement.
While reducing legal dependencies and costs, contract templates also ensure language consistency across all contracts. In addition, templates make introducing organization-wide policy changes easy. Admins can quickly make the changes in the clause library and ensure that the latest language is being used in all contracts.
Intelligent contract management software almost eliminates human intervention during post-execution management stages such as amendments and renewals. For instance, at the time of an amendment, the software automatically generates the amendment letter capturing all the changes made to the original contract and the contract history.
The real-time collaboration capabilities of a CLM solution also promote peer review. Having more brains involved in contract authoring minimizes the chances of errors. Most legal teams report that peer review during authoring also helps reduce review cycle times during approval and negotiation.
Configurable approval workflows
Approval workflows will ensure that internal stakeholders are aware of the potential opportunities and risks in a contract before it is executed. Digital contract management solutions allow admins to configure approval workflows, both sequential and parallel.
Since approvals are automated, contract owners can execute a contract only after the respective approvers approve it. Approvers can evaluate the contract terms and suggest changes to the contract document as comments. The advanced features in modern CLM systems, such as activity tracking at the approval level and timestamps, improve process efficiency and reduce delays.
One of the significant benefits of approval workflows is that they provide better visibility into contract risks at the individual contract level, enabling admins to devise granular risk-mitigation strategies.
Reduced negotiation cycles
Contract negotiation is a significant aspect of contract management. The negotiation process in the contract lifecycle creates an opportunity for organizations to arrive at beneficial terms and set the tone of their business relationships.
Traditionally, businesses negotiate by sending contract documents as email attachments back and forth until both parties agree on the terms. This process involves the stakeholders inserting, removing, and modifying contract clauses. When negotiating via multiple email threads, organizations face several operational challenges, and it becomes difficult to track the negotiation status and accurately locate changes.
A CLM system eliminates the pain of email back and forths and promotes faster negotiation cycles. By using one, the contract owners can securely share contract documents by assigning appropriate access permissions for each negotiator. The counterparties can collaborate in real time to suggest edits and add comments to the document.
A CLM system also provides the necessary capabilities to view the entire negotiation history and compare the document versions. The above functionalities in CLM software, coupled with advanced analytics, allow businesses to gain insights and revisit their negotiation strategies.
Fast contract execution
Most contract management software comes with a native e-signature solution or third-party integrations for contract execution. This empowers contract owners to eliminate the email, print, sign, and fax cycles and get their contracts signed in minutes.
Additionally, contract owners can set signing orders and configure workflows for each contract. By reducing signature delays, CLM software promotes effortless and smooth onboarding of vendors, employees, clients, and counterparties.
The adoption of e-signatures is quickly increasing and pervading all industries due to their convenience. The ESIGN Act of 2000 also addresses electronic signature as the most secure, convenient, and reliable way to bind contracts.
Contract renewal management
Though contract renewal remains a low-hanging fruit for recurring deals, many businesses still miss renewal dates. These missed renewals translate into lost business opportunities and revenue. Typically, the lack of automated alerts is the reason behind missed deadlines and opportunities.
A digital contract management system with automated in-app and email alerts will ensure that you never miss contract milestones or renewal opportunities. It enables users to stay ahead of any forthcoming deadlines and prepare well in advance.
Additionally, CLM software allows contract management teams to evaluate contract performance across different aspects, such as the revenue generated and obligations fulfilled during the contractual period. This evaluation empowers legal teams to make informed decisions regarding contract renewals. Proactively tending to current business relationships will open doors to better and bigger opportunities.
Risk mitigation and improved compliance
Risk is an inherent part of any business, and there are several kinds. Since contracts govern the terms of all commercial relationships, having a contract management system that gives you better visibility and control over your entire process can drastically minimize the chances of risk.
Ignoring risks associated with contracts can lead to non-compliance, resulting in substantial penalties and litigation. Modern businesses are adopting robust CLM solutions with features at each stage of the contract lifecycle that enable risk mitigation and advanced governance to improve compliance.
Contract management software improves data security at each stage of the contract lifecycle. In most advanced CLM tools, the access for users is protected with two-factor authentication protocols; in addition, admins can assign custom roles and permissions for each user. Even at the time of negotiation, contract owners can set passwords for the contract documents and securely share them with the counterparty negotiators.
A few CLM solutions, empower businesses with data-protection settings that help them store, manage, and share their counterparty data in compliance with data-protection regulations like the GDPR. Admins can define the contract fields containing personally identifiable information, anonymize them on demand, and manage other data subject requests.
The download logs in a CLM tool will capture all data downloaded from the CLM system, along with the details of the user who performed the download and the timestamp.
Single central repository
The central repository in a CLM allows storing all contract documents in one place. This centralized storage improves visibility into complete contract details, and the advanced search and filter options in a CLM tool also enable users to access critical information whenever needed.
Digital contract management software allows admins to stay on top of all the activities performed in the CLM tool. Activity tracking at the user level, individual contract level, and across the system, mapped to the corresponding timestamps and users who performed the activities, improves accountability and compliance.
Managing the contract lifecycle with comprehensive contract management software can save legal teams a significant amount of time that could be invested in high-value tasks. The analytical capabilities in a CLM solution can help businesses glean precious business insights from their contract data. These insights will empower the teams to arrive at better strategies and design efficient contract processes.
Since contracts have evolved into dynamic documents touching every part of a business, such as sales, HR, and finance, an advanced CLM tool will promote cross-functional integration and transparency. Improved contract management also leaves a long-term positive impact on your vendor, partner, employee, and customer relationships.
In summary, investing in a holistic CLM solution that can be customized to your business context can alleviate all bottlenecks in your contract management process and enable faster revenue recognition.
Heleena is a writer based in Chennai, India.