Managing contracts efficiently is one of the most crucial functionalities of legal professionals in any organization. Contract management is time-consuming and tedious as it involves reviewing a bulk of documents for inconsistencies, relevant clauses, flagging errors, etc.
A majority of companies hesitate to transition towards automation and, thus, rely entirely on traditional contract management processes, which slows down legal operations, significantly affecting a company’s overall performance and productivity.
Many enterprises have begun to embrace new technologies to fast-track their legal processes.
What is meant by contract analysis and contract automation?
Contract analysis is the review of the legally binding terms associated with specific transactions or commercial relationships. It infers that the information contained in a contract is examined and tracked using contract analysis throughout the contract lifecycle management. This trackable data can be financial or pertain to the status of the contract and clauses, along with fluctuations in companies’ structural policies.
Contracts are essential to the operations and success of any firm. They serve as the foundation for interactions and are employed to create the rules and frameworks that guide daily operations. After a contract has been signed, many businesses store it alongside others, which is quite the same as putting it back in the cabinet. Unless some emergency comes, that is typically the last time the contract will be noticed seriously.
On the other hand, contract automation is the application of software solutions to enable legal and non-legal firms to self-serve on standard legal papers at scale without constantly involving attorneys. Thus, it creates, manages, and stores contracts digitally to develop a more persuasive workflow. Several methods, including the execution of smart contracts, can be used to achieve this. In addition, using AI contract analysis boosts efficiency through an automated contract lifecycle without losing the essential aspects, such as contract collaboration, negotiation, and tracking.
Why should you automate a contract?
Leveraging contract lifecycle management (CLM) technologies, legal teams, and other teams (sales, procurement, HR, and marketing) involved in contracts can save time, increase cooperation, and make wiser business decisions. You can automate the contracts to:
- Save time for those involved in law and contracts
- Reduce errors by fostering excellent teamwork during negotiations and approvals
- Improve business judgment utilizing contract data
What are the challenges of contract management?
Here are the five most typical problems with ineffective contract lifecycle management.
- Control versus speed: The struggle to strike a balance between speed and control is the primary cause of friction throughout the contract lifetime. Contracts are so important that legal professionals prefer to go over them thoroughly. Moving contracts through swiftly while maintaining sufficient monitoring to manage risk properly becomes a major corporate problem.
- Lack of exposure: Lack of general insight into contract terms, duties, and value contributes to the speed versus control problem for lawyers. Agreements indicate the terms of the value traded, and if a legal firm cannot guarantee the correct value for deals, money will slip through your company’s fingers. This causes a significant pain point. Lack of visibility is a particularly critical issue for contracts that are coming to an end and for renewals.
- Incoherent phrasing in the law: It is crucial to use the exact phrases and language throughout all of your contracts. Linguistic gaps can introduce uncertainty or danger. Lawyers may need to be involved in every transaction if you need to find out whether contracts have accurate language or distinguish across contracts. This increases the chance of breaking the law or losing out on money.
- Manual processes and information silos: Internally, across numerous departments, managing all of the necessary processes in the contract process is challenging enough. When you work contracts across many office locations, time zones, or languages, the complexity of doing so becomes significant. It becomes essential to have everything in one area where changes can be monitored in real-time.
When contracts are maintained manually, human mistakes, congested contract cycles, and poor process control can significantly increase the risk. Automating contract administration speeds up contract formation time and gives businesses better control and insight.
- An inability to deal with change: Once the contract is signed, the customer connection becomes more valuable. Thus, it’s critical to have a system in place for handling modifications as they arise. It will help if the involved parties stay informed about contract renewal dates, price adjustments, new legal requirements, and other situations that call for you to talk mainly to the client about the contractual arrangement.
In particular, if the contract language (or lack thereof) exposes the consumer to new risks, you risk ruining the customer’s relationship if you fall short on contract-related communications. Customer retention rate will directly depend on your ability to manage the contract, particularly changes over time and the renewal process.
How do we automate contracts?
- Describe the positions and duties: Decentralizing the approval process to finish contracts in fewer steps and lesser time is one advantage of automating contracts. However, it would be best if the legal firm first allocates authority and duties in this new workflow before one can start automating contracts. For example, specify who has to give final sign-off or approval for each document and the roles that employees of each department will play in automated contract procedures.
- Digitize agreements: Contract automation can make the process of managing contracts entirely paperless.
- Use a dashboard for contracts: Not only does doing away with paper contracts free up filing cabinets, but it can also increase contract visibility. Tools automatically create a dashboard database of all the contracts you are managing.
- Automate workflows for approval: In manual contract management workflows, it may take several back-and-forth communications for each stage to receive permission before proceeding. Hence, this process calls for thorough tracking to avoid bottlenecks and protect workers from falling through the gaps.
- Compile e-signature data: The process of collecting signatures on documents is simplified. The counterparty would have to print out a PDF of the contract, sign it, scan it, and email it back as a new PDF under manual management procedures.
Recognizing, evaluating, and reducing contract risks
It’s easy to get caught up in roles, duties, and who’s-doing-what while beginning a new project with your team. However, it’s also a good idea to step back and evaluate potential hazards at the very start of any endeavor.
Identifying the risk is the first step in risk mitigation. Here are some essential methods to assist you in spotting any dangers in future projects:
- Speak with a few people on your project management team
- Name a few of the most prevalent threats connected to your project
- Examine the dependencies for your project
- Make use of a risk analysis tool
To wrap up
In addition to allowing a legal firm to manage contracts from beginning to end, implementing CLM can help the firms establish positive relationships with the parties with whom they engage in contractual agreements.
However, to have a seamless flow of operations, firms must adopt automated contract analysis in their business processes. As a result, the internal or external stakeholders will be more likely to continue and renew their ties with companies, provided the company implements contract risk mitigation strategies.
Team EdgeVerveMore blogs from Team EdgeVerve >