This is an important question to consider critically. Although contract management software is a significant investment, the high price of low-cost contract management often far outweighs this initial, carefully considered expenditure. What’s more, according to Goldman Sachs, an automated contract management system can lower the cost of managing contracts by 10-30%. If managing contracts is a critical part of your organisation’s operations, consider the following key factors when deciding whether or not you need a dedicated contract management solution.
1. Contract volume
The more contracts and contract data you handle on a daily basis, the more room there is for contract data and document management errors. The inability to quickly retrieve contract documents and data can hold up contract processes from drafting and negotiation to review and approval. What’s more, audits can be stressful without ready access to historical data. Finally, it grows nearly impossible to reference past contracts for informed decision-making without an easy and straightforward way to find them.
If you want to avoid the tricky situations mentioned above, you should consider a contract lifecycle management (CLM) software solution with a secure and highly searchable contract repository.
A contract repository allows you to search for contract documents, attachments, metadata, terms, sections, and clauses down to the phrase, key term, or even word level. With saved searches, search history, and “Did you mean…?” functionality, you can locate contracts and associated files and data quickly and efficiently when you need them. Numbered contract versions and comprehensive audit trails make it easy to ascertain the most up-to-date version of a drafted or negotiated contract as well.
Consider a contract management system if you want a solution that scales with ever-increasing contract volume.
2. Contract complexity
If you are managing complex agreements with many contract terms, complicated clauses, and multiple parties, it can be easy to make mistakes during contract management processes. The manual management of contract data can lead to missed key dates and confused obligations. A lack of standardized clauses and language can lead to ambiguities on both sides of a contract. Without insight into how a contract affects both parties, business relationships can be one-sided and unclear.
If you want to avoid missed obligations, unpreferable contract language, and one-sided contracts, you should consider a contract management software solution that provides automated contract data extraction, auto-redlining, the merging of pre-approved templates and clauses, and contract sentiment analysis with generative AI.
Automated contract data extraction allows you to map important contract metadata onto a tidy contract record screen. These metadata fields can be incorporated to automate workflows to accomplish key tasks such as timely electronic signatures for contract execution and revisions in preparation of contract renewal dates – just to name a couple. These metadata are easily searchable (as mentioned in the section above) and can be reported on for maximum oversight.
For contracts with preferred language, you can merge pre-established, optimal contract templates with pre-approved clauses for the best contract outcomes possible. For newly introduced or previously introduced contract documents, you can leverage auto-redlining functionality to automate the inclusion of clauses from your approved clause library – virtually ensuring that favourable clause language is included. You can auto-redline documents ad-hoc or configure to auto-redline documents upon upload. You can quickly see and manage automated redlines and comments with comprehensive audit trails.
Using generative AI, you can also easily determine positive, negative, or neutral facts about newly introduced contracts to help with visibility and strategy. You can trust a system that can recognize positive and negative relationships of data and patterns powered by AI. You can see positive, negative and neutral aspects of a contract from the perspective of involved counterparties. That way, you can always come to the negotiation table with a contract that benefits both sides of the aisle.
Consider a contract management system if you want a solution that hits the mark as contract complexity grows.
3. Too many cooks
Without a centralised platform for contract collaboration, teaming up with different internal and external stakeholders on contract negotiations, reviews and approvals can be tedious and difficult. Back and forth, emailed communications on contracts and versions can make it easy for your agreements to get lost in cyberspace. Furthermore, it can be easy for contracts to miss crucial sets of eyes, or for outdated contract versions to be pushed through to approval and execution.
If you want to foster healthy and organised contract collaboration, consider a contract management system with a document collaboration module.
A centralised contract collaboration interface supports online contract negotiation between internal and external parties via a secure online portal that tracks changes and accelerates signatures. You can enjoy:
- contract collaboration and negotiation alerts
- redline tracking
- contract version and comment tracking
- and electronic signatures and eApprovals.
With task escalation, workflow tasks that are not being completed in a timely manner can be escalated to another resource – improving accountability and ensuring your tasks are performed on time. Clause ownership allows clauses to be locked for editing unless performed by that specific clause’s assigned owner.
4. Contract risk
Improper contract risk mitigation can lead to damaged business relationships, financial losses, increased costs, legal disputes, reputational damage, non-compliance with regulations, and potential liability due to breached contractual obligations. You don’t want to sacrifice the stability of your operations. You need to follow the lead of so many successful legal teams and mitigate risk properly.
With a contract management risk and opportunity assessment tool, your organisation can proactively map risk and risk exposure variables. You can establish risk acceptance policies and guidance by contractual risk category to be dynamically visualised and analysed. As such, your team can identify items that fall outside of your acceptable range of risk and quickly address them.
Your organisation can easily classify significant risk categories (such as contract compliance mistakes or compliance risk), depending on your hierarchy of contracting needs. You can rank and identify contract risk events and their probability to establish an understanding of events that would negatively impact your organisation. For high-risk contracts, vendors, and purchases, your organisation can review and log risk events and quantify risk.
With the ability to monitor risk in such a powerful and visual way, your organisation can reduce risk and even avoid some risks altogether. You can recognise trends and implement routine risk reviews. You can implement strategies and best practices to reduce risk exposure and probability.
Consider a contract management system if you want a solution that helps proactively and actively analyse risks.
Key takeaway
So, hopefully, we’ve helped you determine if you need a contract management system. If you want to enjoy an accurate, visible, collaborative, and risk-averse contract lifecycle management process, the answer is yes.
If you want to learn how to get started with a contract management system with all of the features above and more for better contract management, book a free demo with a Contract Insight® expert from Four today.
Contact John O’Brien, CEO at Four Business Solutions – global business consultants and software integrators specialising in business process improvement.