All of the relationships that companies have with stakeholders like suppliers, partners and customers are governed by a contract. That is why it is so important that contract management be done in an agile, transparent and standardized manner. Nevertheless, this process is oftentimes characterized by a slow pace and inefficiency.
Contract mismanagement problems
Mismanaged or not appropriately monitored contracts can result in major losses for corporations. When done manually, this process is subject to the bottlenecks and mistakes that happen day to day, in addition to consuming a great deal of time to achieve the desired result. Here are some of the biggest consequences hindering organizations the most when it comes to contract management:
- Document loss
- Time spent on notarization
- Losses from missed deadlines and renewals
- Increased risk of non-compliance
- Slow negotiations, creation and approval of contracts
- Lack of standardization for contractual systems, processes, formats and clauses
- Contracts spread throughout the organization
- Substantial time lost on manual tasks
- Inefficient approval flows
- Difficulty managing contract versions
Importance of managing contracts
Contract management is the process that coordinates the entire contract lifecycle, from initial requests, schedules and payment dates to a contract’s termination and renewal. In an effort to improve operational performance at organizations and mitigate financial risks, the stages in this process encompass performance analysis in relation to the contract’s terms and phases.
Contracts affect many areas within a company and the way they are managed can significantly impact budgets, operations, customer service and the company’s image in the market. Moreover, there is an increasing need to rely on transparent and effective contract management to comply with regulatory standards.
Efficient contract management therefore improves the organization’s productivity, making employees’ work easier and generating better results as a whole.
Benefits of contract automation
An automated contract management process makes mistakes and losses less likely. This means that companies are increasingly looking for automated processes to drive their performance and achieve their goals. Automating these activities reduces bureaucracy while also streamlining and facilitating the entire process.
Automation converts disconnected activities that generate expenses in centralized and collaborative processes, providing visibility, optimization and a competitive edge. Highlighted below are 4 benefits that automated contract management can bring to a company:
1. Security and centralization
Contracts and the documents related to them are oftentimes stored in different physical folders, usually without access control, which makes efficient and secure document management difficult. In addition, this method of file storage creates a dependency on paper and requires a large physical space.
Storage of contracts in a central repository enhances transparency, security and search capabilities during the entire process. An automated contract management system allows for cloud storage, protecting files through encryption, which prevents data loss or file corruption.
2. Easy and practical document management
Lack of standardization causes companies to be inefficient in managing contracts. People can work on incorrect document versions, resulting in low productivity and putting organizations at risk.
Automating this process guarantees that it is standardized and has an interactive structure that prioritizes integration. This means it generates effectiveness, offering very clear stages to be executed and preventing errors, streamlining the entire chain in the process. It furthermore ensures that employees are always using updated versions of these documents.
3. Agile process
While they await signature, contracts are usually spread across companies and are oftentimes lost or forgotten in the middle of so much other paperwork, which ends up making the process very slow.
By automating the process, activities related to requests, approvals, notifications and delegation of tasks are made simpler. Requesters and the legal department are able to keep track of the document’s journey in real time, promoting collaborative workflows and providing editing tools so that the team can easily and quickly work together.
Automatic reminders can also be set to notify essential parties of document revisions. This eliminates the risk of losing contracts while also keeping contracts from getting stuck in e-mail inboxes or building up on desks. Digital signatures can also be used, making it more efficient and secure in contract performance.
4. Simplified oversight of terminations and renewals
All contracts have specific termination and delivery dates. Part of managing a contract is knowing what to do when they near termination. Many legal departments use spreadsheets to manage and control the validity and renewal of contracts, which demands a lot of manual labor.
The result of this type of management is the possible creation of contracts that are automatically renewed year after year under increasingly unfavorable terms. In addition, in more serious cases, organizations can risk non-conformances by not complying with contract clauses or even by keeping contracts that are no longer in effect.
A successful and automated contract management solution automatically tracks renewal and termination dates and notifies administrators in advance. It also provides reports so that the company is always aware of what stage each contract is in.
Now that you know the benefits and importance of relying on an automated contract management process, see our eBook as well, which shows the 10 main steps for successful contract management.