We live in an increasingly complex world, where volatility and uncertainty are already part of the daily life of companies, especially in the context of the global pandemic experienced during 2020. In this new scenario, it is necessary to digitize every process within the company by using the best possible tools. Thus, something that used to be considered a mere formality or legal procedure becomes relevant, but today it has become an asset of special importance: contracts and their virtual management.
Contracts are part of any internal and external relations within companies, and this is why contract management is an opportunity to ensure the sustained growth of a company’s operation. However, contract management is a relatively new discipline and few companies have an area specifically responsible for this task. For this reason, this task is usually dispersed in several areas of the company and in an analogical way, which makes its administration difficult. Due to the above, considering contract management as an integrated process, using the contract lifecycle model for this end is very useful.
First of all, contract lifecycle management is a system that seeks to automate and optimize contractual processes at all stages. From the request for a contract, the creation, negotiation, approval, signing and fulfillment of the document. In all these phases, different areas of the same company interact and participate, as well as third parties or external parties.
It sounds logical, but many companies have not properly defined this process. As a result, the loss or "dispersion of contracts" is a common pain in companies. But an optimally and efficiently managed contract reduces costs, saves time and resources, and facilitates the business relationship inside and outside the organization.
Therefore, a SaaS (Software-as-a-Service) solution for Contract Lifecycle Management (CLM) is a suitable tool to automate the process of creating, executing and managing one of the most important assets in companies: contracts.
A CLM helps you unlock what is often a cumbersome and complex process. Moreover, in these times of necessary virtual activities, they are a solution to have all the contractual documents available, ordered and managed in the same place, accessible at any time and in any situation.
Without a CLM for contract management, the state and health of these documents is uncertain: the risks of paper loss are high and the search with certain criteria becomes complex and time-consuming. However, a contract lifecycle management software can enhance and make transparent all the stages of contract management; it standardizes times, orders the stages and highlights the responsibilities of each of those involved in the contracts All this is done digitally, making these moments of remote work more enjoyable for all members of a company.
Now, the cycle may vary depending on the objectives and goals of the organization. This guide sets out 6 key stages within this process and shows how to manage with Contract Management Software:
There are many circumstances when, in some area of the company, someone requires the drafting of a new contract. Either in the purchasing area, when a supplier needs to be hired, or in the sales area, to formalize a business with a new client.
The very moment a new contract is required; the contract lifecycle begins. Nevertheless, in most companies there is no properly established process for requesting new contracts thus generating a series of undesired consequences. First of all, those who need a new contract do not even know beforehand to whom they should turn for its drafting: Should it be sent to the legal area, and if so, under what circumstances should the contract be requested from this area? Will it depend on the amount of the business? Should it be done when there is no standard contract?
Once it is determined that the request should be escalated to the legal department, the process becomes more cumbersome, as requests are often made through multiple channels: by email, by phone, by Whatsapp, or even in an informal hallway conversation. With requests coming from various platforms, the legal department fails to properly allocate the requests and they end up without a clear resolution and proper follow-up.
Another problem faced by the legal department is that it often receives requests with incomplete information, i.e., not all of the data needed to generate the new contract has been provided, so some members of the area must obtain the remaining information in order to begin drafting.
With this in mind, it is not surprising that in Blickstein Group's ninth annual survey of legal department operations, legal professionals reported that they spend 13% of their time on administrative work outside the legal department. If we add to this the 19% of time spent on internal administrative work within the department, professionals spend a total of 32% of their time doing this work instead of dedicating it to legal work. Knowing that one of the most frequent complaints of the legal department is the lack of budget to hire more lawyers, something that companies simply cannot afford.
Therefore, it is crucial to be able to automate the process of requests for new contracts. Fortunately, technology makes it possible to unify the channel through which requests are generated, thus formalizing this process. This allows the legal department to centralize its requests and allocate its resources according to the level of complexity and priority of each case. Formalizing this process also demands that the requests include all the information that legal professionals may require for the drafting of new contracts resulting in a drastic reduction of the time spent on administrative tasks outside the legal department.
A contract management software such as Webdox has a complete system for the request of new contracts. This software, in addition to centralizing this process, also provides the possibility of configuring the requests based on the reality of each company, thus allowing the assignment of different roles as well as the people in charge of each request, depending on the complexity or nature of the request
After the requests, the contract review and creation process follows. This task is carried out by the administrative staff in this role, but the importance of a constant analysis to evaluate the development of the processes involved should not be overlooked.
agreement and the signature of the participants. How do you streamline the review of these documents without making any errors that result in wasted resources?
Contract management software can automate this process and eliminate unnecessary delays and inefficiencies in document review.
Most companies manage their contracts manually, which makes the contract lifecycle uncertain. This is done quickly because there is no time to thoroughly review the content - which can lead to errors - or it can take a long time because the clauses, roles, and objectives are unclear.
The biggest risk of manual contract review is that human error can be costly. In contrast, an optimally and efficiently managed contract reduces costs, saves time and resources, and, at the same time, delivers process certainty, facilitating the business relationship inside and outside the organization. Ensuring that contracts are built and controlled from creation to completion with traceability and monitoring will lead to peace of mind for all those involved.
Contract management software streamlines and makes this process transparent, standardizing timelines, ordering stages, and highlighting accountabilities; especially today, when bids are becoming more complex and under greater pressure to move quickly and effectively virtually
In contracts with standard clauses, there is no need to go through multiple reviews, but in more complex contracts there are likely to be segments of content that require extensive reading for approval, making it necessary to be certain that the information will be reviewed at the right time and in the right way.
If the process is manual, managers must review the entire document to check if there are parts where no changes are needed, which generates a lot of wasted time. In contrast, specialized software for contract lifecycle management can identify the specific content segments to be modified through an automatic distinction and dividing the content using a filter that recognizes everything that is new, as opposed to the clauses that are standard. By keeping a record of all comments, dates, times, and changes made, this task is facilitated for later follow-up during the contract audit. Therefore, nothing is left to chance, since there is more direct and easy access to the visualization of each process, with defined times for each review.
When the review process is complete, the contract is sent to the various parties involved for it to be signed. Read on to learn more about the contract signing stage.
Nowadays, a large part of the procedures and processes related to contract management is digital. From the drafting in an electronic word processor (Word or others) to its storage in a library or digital repository.
Although the digitization of processes in companies is increasing, in the legal area, there is still a loophole from the past that plays an important role in the process of approving a contract: the handwritten signature.
Currently, several countries are seeking to streamline document management processes with the implementation of electronic or digital signatures, governed by different regulations according to the legislation of each territory. How would it benefit you, as a company, to use this signature method?
Handwritten signatures have intrinsic delays that are difficult to eradicate. It usually involves printing the document, scanning it, and sending it electronically to both parties involved. Sometimes, it requires this mechanism to be done multiple times for several people involved in the contract in more complex contracts.
As the certification company Signaturit explains, the traditional manual mechanism can take an average time of 5 days. With the digital electronic signature tool, it is possible to do everything in an average time of 30 minutes.
In the case of processing a signature, the traditional mechanism incurs material costs (printing on paper and printing toner), the cost of sending the physical paper to sign and its return, expenses for sending regular or certified mail by a private courier service, among others. All these associated costs are reduced to zero when the entire signature process is digital.
The document becomes available quickly and simply compared to the traditional version. By using contract management software such as Webdox, your search in digital format also becomes much more efficient.
More and more companies are entrusting the management of their processes to technological tools. Such an effective and relevant solution helps to reduce uncertainties and distrust among the participants in the process.
However, the type of electronic signature to be used will depend on the type of document to be signed. Many companies use the simple version, which basically consists of a photograph of a real signature, especially for internal procedures that do not require legal validity. Such is the case of employment contracts, salary statements, company memos, etc.
The digital or advanced electronic signature, on the other hand, is far superior because it requires registration and validation by a specialized company through the use of an authentication device. This has given a perception of the high cost of this signature. Therefore, it has been used mainly for documents that require the signature with full legal validity of a senior executive or manager due to their legal implications.
Now, how can electronic signatures be incorporated into the contract’s lifecycle?
With software such as Webdox, electronic signatures and their different forms can be easily included as part of the contract lifecycle management:
Continuing through the life cycle of the contract, one of the final and fundamental stages is the renewal or renegotiation, in which unforeseen events and expirations sometimes occur and must receive the necessary attention.
In this part of the contractual process, unforeseen events such as the expiration of a contract validity often occur. This is mainly due to the fact that those responsible do not remember the expiration date. The problem is that these oversights can create a major headache for the contract team, the legal team and other members of the organization, as well as a mistrust of the counterparty or other business relationship problems. With contract management software, however, these and other problems can be avoided:
One of the most common problems in contract management is that these documents are often filed without analyzing key dates, terms, and milestones. You must have a system capable of recording key dates and allowing you to set up alerts proactively.
Software such as Webdox allows you to set up alerts based on key dates of the contracts, such as the expiration date, the expiration of a warranty bond, or any relevant milestone of the document. Likewise, you can define the users receiving the alerts, the number of notifications to be received, and the warning time for each one. This functionality is fully configurable and has a dashboard that allows you to visualize the status of contracts to have everything under control.
Two undesired consequences usually arise from the above problem: on the one hand, the fact that an important date goes unnoticed could lead to additional charges, which may be completely ignored until the counterparty makes a statement and, by then, the case is already lost. On the other hand, in successive track contracts, where the only opportunity to renegotiate the contract terms is usually close to the contract renewal date, it is essential to have sufficient time to prepare for negotiations. Otherwise, the contract will renew automatically, thus missing the opportunity to improve business conditions for the company.
The time to renew a contract is the ideal moment to add, change or update some of its clauses, ensuring that the contract continues to be a valid support for the business, capable of facing the new market conditions. Problems arise when the time comes for renewal and there is no previously established process. In this situation, it is often decided to maintain contracts with obsolete clauses or clauses that do not apply to current market conditions.
Hence the importance of automating this process, establishing, prior to the renewal of a contract, which clauses are subject to change, as well as those in charge or interested in reviewing a particular portion of it, keeping the contracts 100% useful and operational.
Renewing a contract implies generating a new document with all the costs involved:
Sometimes, for the same business, innumerable documents have been generated as contracts have been renewed. This causes a contract to generate "legacy costs," which accumulate year after year. All of these costs are drastically reduced with contract management software. Read more about the costs associated with contract negotiation in your company
Every year, companies lose the equivalent of 4% of their turnover due to contract negotiations that take too long. In addition to the usual difficulties in reaching an agreement, inefficient document management often leads to even longer lead times. Do you know how this can be avoided in your company?
You are probably familiar with this type of situation: your company has been negotiating an important agreement with a customer or supplier for months. Both parties are interested, but the negotiation process seems endless, with constant changes to the contract, clauses discussed down to the last comma, changes that are not properly implemented, old drafts that “magically” come back to intrude on meetings and emails over and over again.
As the negotiation drags on, your company is losing money and business opportunities. T's not just something that happens in your company: The International Association for Commercial and Contract Management (IACCM) estimates that companies lose 4% of their turnover each year due to the costs of excessively protracted negotiations.
This type of problem delays 40% of business agreements, a percentage that reaches 70% in negotiations of high strategic value. The consequences of prolonging the closing of a contract too long are catastrophic: loss of revenue and business opportunities, paralyzing the launch of new products and services, defaults with suppliers and customers, damage to brand image, dissatisfaction, and tension among company employees, etc.
How can proper contract management help reduce these times?
Having a clearly established contract lifecycle will allow your company to have full visibility of what stages a contract must go through and who is in charge of negotiating them. Therefore, your company can take proactive measures to ensure that contracts are always produced on time and do not create bottlenecks that unnecessarily delay negotiations of new contracts resulting in millions of dollars in losses.
The last point, but just as important as all the others mentioned above, is identifying contract management KPIs.
Without a strategy, a company will fail to determine whether it is successful since the objectives and goals to be achieved are defined in the strategy, i.e., where the company wants to get to. On the other hand, a good strategy without proper execution becomes nothing but many good intentions. But how do we know if we are executing the strategy correctly and if we are on track to achieve the proposed goals?
KPIs, or Key Performance Indicators, are key indicators that provide a diagnosis of the status of a company or specific area towards the achievement of its goals. The contract lifecycle management offers an excellent opportunity to obtain KPIs that help us achieve the company's objectives. More than purely informative figures, they should be treated as metrics on which it is vital to perform some management. A KPI is more than an indicator; it is actionable information.
Among the most relevant KPIs for contract deadlines, we have:
Both are key indicators that allow us to know how long it takes our company to have a signed contract after it is requested and delays in the required approvals. By having these KPIs always at hand, we can know where it is necessary to adjust processes and reallocate resources to have contracts ready as soon as possible.
Now, if we talk about the management of contracts with suppliers to ensure a correct and continuous operation, there are other KPIs that allow us to take proactive actions, for example:
As well as these, KPI's could be developed for each area of a company, such as Purchasing or HR.
Knowing about which KPIs to measure is not enough. It is also necessary to have a reliable method to obtain them. Here technology is very relevant since all the mentioned indicators can be obtained automated using a contract management software such as Webdox.
Webdox is designed for all stages of contract administration, but not only does it offer the necessary tools for this entire process, but it also has a reporting module that allows us to configure the most relevant KPIs for the correct contract management of our company.
In short, the correct management of the contract lifecycle can take your company to the next level, especially in contexts such as the current one, where we must strive for optimal digitization of each company's process. A Contract Management Software can turn legal documents into a strategic tool. Contracts are designed to provide security to companies in the midst of uncertainty and disagreements, but they can end up as a risk factor if they are not managed correctly. Therefore, implement the best practices we have presented so that your contract management is efficient and enhances your business.