What Is Automated Contract Management?
Automated contract management is defined as the strategic, methodical approach for managing contracts from the start to finish. These contracts can include many different types of agreements, including licensing, sales, purchasing and distribution. It is a process that helps organizations manage the entire lifecycle of a contract, which can include initiation, drafting, evaluation , execution and disposal. The purpose of this process is for companies to gain control over the negotiation and execution of contracts. A major part of the automated contract management process is working to minimize risks and unnecessary manual transactions by standardizing and streamlining operations. One reason for the importance of automated contract management is that it allows legal teams the ability to make the contracts process more efficient while still remaining compliant with company policies and regulatory requirements. Something that can be beneficial across various business functions such as finance, purchasing and sales.
Key Attributes of Automated Contract Management Systems
The key differentiators of automated contract management systems are their ability to significantly enhance the levels of contract abstraction and compliance management, as well as their integrations with other systems. While automated contract management solutions can come in both stand-alone and integrated forms, there are certain key features that should be present in either model. These include: Contract creation and storage. This includes not only the capacity to efficiently author new contracts, but also the ability to store and search for them. Contract authoring represents one of the most concrete and tangible benefits of a CLM application, allowing users to quickly find templates, add standard language, and modify provisions and clauses as appropriate. The CLM application should also allow users to easily search through both metadata fields and the body of the contract, based on criteria such as clause cap amounts, dates, parties, expiration terms, and related documents. Key dates tracking. This feature helps organizations avoid adverse legal consequences and mitigate their risk through automatic notifications regarding critical dates and storage of documents related to the contract. Users can choose to enable notifications for particular events, like authorization to incur expenses or completion of a project milestone, or for any event before or after a specified date. Approval workflows creation. CLM applications should allow organizations to automate their approval processes and keep track of who is responsible for signing particular documents, whether its salespeople, legal counsel, executives, investors or all of the above. Every time a new contract or change to an existing one is proposed, the system should automatically route it to the proper signatories in the appropriate order, following which it should store them in the appropriate folders for automatic retrieval. The application may also allow for automated follow-ups with signatories who don’t act fast enough.
Advantages of Automated Contract Management
Automated contract management provides a multitude of benefits even if you only have a small number of contracts that need to be managed. For one, having your contracts stored in one place can save you hours when you need to track down a specific contract. When contracts are housed in digital software, you can filter them by status, which can give you insight on where the contract is in the negotiation process. This not only saves you time but also allows you to make better decisions about how to proceed with a contract negotiation.
Having the ability to standardize and streamline your contracts can save both you and your clients money as well. Because you may find you need less of your legal counsels’ time reviewing contracts, you may find that the costs of your contract negotiations decrease. Furthermore, by standardizing your contracts, you’ll be able to grant approval of contracts without needing to negotiate the same terms over and over again.
Using contract management software can allow you to track your contracts on KPIs you’ve never been able to track before. For example, if you had to manually extract data from each contract and then compile that information into an Excel sheet, it may have taken too much time to gather the information you wanted and so you simply didn’t do it. Using automated contract management software can help you create useful KPIs such as total spend per vendor, total spend per customer, average redline per contract or contracts per channel.
Having accurate, organized data also helps you all to be on the same page when it comes to your business. You won’t be worrying about people in your organization trying to negotiate with the same vendors because they’re all working out of the same system. Having accurate, organized data also reduces the number of contract disputes you need to deal with.
Finally, implementing automated contract management into your business can help improve your compliance. Understanding the risk of nondisclosure or non-conformance by customers and/or vendors is crucial. With automated contract management software, you can greatly reduce the risk of losing confidential information or being out of compliance with the law. As concerns regarding data security increase, organizations are looking closer at their contracts to help them stay in compliance with data privacy laws.
The benefits of using automated contract management software are numerous. It increases efficiency, helps you manage your risk when it comes to compliance, reduces errors, saves you time and money, helps you stay organized and so much more. These advantages can be seen in any size business, and regardless of your industry, if you’re dealing with contracts for your company, automated contract management software can greatly benefit your organization.
Issues and Remedies in Automated Contract Management
The fortuitous advantages of automated contract management can prove elusive if hurdles in its implementation aren’t adequately addressed. The most common ones include:
Mobile Compatibility
It may not be possible to list mobile compatibility as one of the essential features of the contract management software you plan to implement, but there’s no denying that it can be an important roadblock. You might view this as a minor challenge because in most cases, the benefits of having all your files in the cloud outweigh the absence of a mobile app. However, this could turn out to be a deal-breaker and a major setback in some cases.
Typically, a document management system has two key components: a document management application and a database that stores and organizes data both logically and efficiently. If the application is constructed for only stationary devices, the chances of having it integrated with the cloud are very slim, which means there will be no working app on mobile devices.
The solution to this problem might involve seeking out newer vendors who do provide proper mobile compatibility or upgrading the current version. The latter may not always be possible because if you have been using the same old software for a long time, the vendor is unlikely to invest significantly in upgrading it any further.
Difficulty in Identification of Red Flags and Patterns of Behavior
A contract management software is only as useful as the amount of data it contains. If you don’t feed sufficient information into the system, it can’t possibly decide or predict anything with a higher than random accuracy rate. Its ability to detect potential dangers, analyze the significance of the data, and extrapolate patterns of behavior hinges upon having enough data fed into the system. However, this doesn’t mean such systems can actually predict the future with any substantial accuracy. Such systems are simply not designed to do so.
The majority of vendors don’t provide adequate demos or training. It’s quite possibly because most buyers don’t ask for enough. Although it’s common knowledge that customers need to train the staff to use such software, little attention is paid to getting essential in-house training in general. Your IT team should not have a single point of failure. There are portals that offer training through gamifying, which is less stultifying to new employees and participants in general.
The solution lies in not depending on the IT team to do the job. Everyone is responsible for equal participation in the onboarding and training process. Involve all stakeholders. The more collaborative the effort, the more likely everyone is to understand and realize what needs to be done to ensure that everyone is getting the best out of the system.
Excessive Promises by Software Vendors
An old adage that conveys the fact that every party will try to get the best deal they can manage to is especially relevant when considering a software vendor. The software vendor’s job is to sell you a contract management system that is best fit for your needs, although they will always try to sell you the priciest one that provides them with the best margins of profit. For that reason, it is a good idea to call their bluff and avoid getting sold something you don’t need simply because they know how to package it.
How to Select the Right Automated Contract Management Software
To make an informed and effective choice in contract management software, organizations should consider a number of key factors. First and foremost, scalability is a critical consideration. It’s important to find a solution that can grow alongside your organization. A suitable contract management software should be able to accommodate not only your current needs but also your future ones as your business scales. This means choosing software that can add users, departments, and locations with ease, minimizing disruption and maximizing efficiency over the long term.
User-friendliness is another fundamental factor. Contract management software should be intuitive and easy to navigate, even for those who are not tech-savvy. Complicated software can lead to a steep learning curve and frustration among users, hindering productivity. Look for software that provides a seamless experience, with an easy-to-navigate interface and ample support documentation. Moreover , consider the level of training required to bring employees up to speed on the new system. Efficient software should require minimal training and allow users to work independently with confidence.
Integration capabilities are also crucial when selecting contract management software. Consider how well the software connects with your existing tools and systems. If you use other software solutions for customer relationship management (CRM), human resources, or accounting, an effective contract management system should integrate easily with these programs. Integration minimizes data silos and promotes smooth information flow, reducing the time and effort needed to complete routine tasks.
Finally, don’t overlook the importance of customer support. Strong technical support is invaluable when rolling out a new contract management solution. Look for software with reliable customer service that can assist with any issues or questions that may arise. Automation can be a major upheaval for employees and will be met with a variety of questions. Having direct support from the software provider will help ease the transition and ensure everybody’s concerns are addressed.
By taking these factors into account, organizations can select automated contract management software that not only meets their current needs but will also scale and grow with their business over time.
The Future of Automated Contract Management
In recent years, much attention has been paid to automated contract management solutions that employ artificial intelligence (AI) and machine learning software as their core technology. By relieving manual document review through the use of contextual data extraction, contract management tools can identify categories of document metadata as well as clause- and document-level attributes. Some of the more advanced contract management solutions can also connect to internal and external databases for populating clauses with pre-approved content and other constituents for automating contract negotiation and approval workflows.
As more organizations begin to adopt automated contract management and seek to identify appropriate solutions and implementation partners, we have started to see a narrowing of the competitive landscape for contract management solutions that leverage AI and machine learning. With some consolidation already underway in the contract management software market, we expect to see further investment in the available solutions, feature set development and integration capabilities as the industry continues to grow and mature.
Alongside industry investment, many organizations have also begun to implement emerging (and not so emerging) technology such as blockchain, which can be leveraged as an additional component of an automated contract lifecycle management solution. As the open source blockchain community continues to develop under the leadership of prominent legal and business minds, we anticipate that there may be a shift to adopting a blockchain standard for smart contracts that will ease integration hurdles and create a compelling value proposition for smart contracts as an alternative to traditional contracts. There is also a growing consensus that automated contract lifecycle management and other industry 4.0 technologies will have a more significant impact on contract risk management than industry 3.0 technologies (e.g., document management systems).
Case Studies: Real-Life Examples of Automated Contract Management
You’ve learned about what automated contract management is and why it’s important to your business. You’ve also heard about real-world examples of how automated contract lifecycle management (CLM) can help you reduce the number of contracts you need to hire external counsel for, and other ways a CLM solution can help you. But how have businesses of all sizes benefited from these solutions? Here are some real-life examples of organizations that have put automated CLM into practice, from the largest global enterprises to small and midsized businesses (SMBs).
A global manufacturer automates contract management with Sourcing and Contract Management (SCM) At a leading global manufacturing company, both the procurement and sourcing departments spent a significant portion of their time on contract creation and management. A bulky, disconnected contract management system made searching for specific contracts and contract-related documents a frustrating challenge. Contract managers not only struggled to find what they were looking for, but they didn’t even always know whether the contracts were even in their own system. The company knew that a better contract management solution would enable them to do their jobs more effectively. The right CLM solution could save their procurement team as much as 60 hours a month searching for documents, as well as allow them to more quickly and easily create and update contracts for both their suppliers and for revenue-generating purposes. The manufacturer turned to Sourcing and Contract Management (SCM), a comprehensive CLM system. With SCM, the organization was able to speed up invoice processing by streamlining contract authoring and management. Thanks to SCM’s single source of truth, quicker invoice payments, improved visibility of liabilities and compliance risks, and more efficient audits, the manufacturer was able to fully recoup lost savings.
A financial firm switches to a cloud-based contract management system A major financial company needed a new contract management solution. Their old system was no longer able to support their business needs. The manual processing of contracts was taking too long and preventing them from meeting client service and compliance demands. Plus, their contract processes were complicated by their regulating bodies , which required that client contracts comply with foreign regulations. The company’s risk management department was spending far too much time searching for contracts and has difficulty quickly finding the most up-to-date version of contracts. Realizing that automating contract management had the potential to save them money while addressing the pain points they were currently facing, the organization chose to automate contract management with an innovative, cloud-based solution, Salesforce Contracts. The organization now enjoys automated contract alerts, a centralized contract repository, and the ability to keep tabs on contract modifications and statuses thanks to Salesforce Contracts’ real-time notifications and updates. Salesforce Contracts’ automated workflow also keeps individual team members on-task while eliminating slowdowns by ensuring that everyone stays in sync. Additionally, Salesforce Contracts’ document merging and creation solution allows for the manufacture of complex agreements in a fraction of the time it takes for its competitors. In fact, with its old system, the company was used to spending more than 600 hours per agreement to review and update their contracts. Salesforce Contracts now reduces that number to just six hours per agreement.
An insurance provider automates its contract management The finance and insurance organization that owned a large provider had been facing compliance and contract management issues. In addition to a lack of visibility into the status of contracts and the contract management process, they were also dealing with an ever-growing library of new and updated contracts, which made it difficult to "find the right contract at the right time." At the same time, they were also vexed by an increasing number of requests for contract amendments, so many that it was difficult to keep track of and oversee them. Everyone involved in the process was struggling to meet compliance and regulatory requirements. Faced with a growing with contract management problem, the manager of vendor contracts turned to Cougar Mountain Software’s Contract Management Software. They were able to take full advantage of the new software’s capabilities. Cougar’s automated contract management solution allowed for more expedited contract renewal processes, full tracking of contract history and changes, more protection against regulatory risks and penalties, and "mass modification capabilities" that allowed users to make changes to thousands of contracts in a few simple clicks.