Although effective contracting is something that every company aspires to, a great number of them fall short. In reality, only a small percentage of businesses employ digital contract management software to simplify their contracting processes.
Moreover, industry experts have now and again concluded that ineffective contracting processes slow down revenue recognition. They also have a detrimental impact on sales teams' focus.
In this article, we briefly discuss what hardships you encounter while contracting and how to modernize and streamline business contracting using digital contract management software. Let’s begin.
What is contracting in business?
Contracting in business can be defined as the process of entering into an agreement, accepting another party's terms, and achieving mutual goals. It is how people, processes, and businesses collaborate toward their specific desires and needs.
Contracts are essential because they perform various business functions. They record rights and obligations, make private promises legally enforceable, and prevent disputes. They even carry risk and profit equally.
However, the formidable fact is that contracts are the most disorganized and poorly managed documents within organizations. Today, without a dedicated CLM, contracting in business is both clunky and time-consuming.
The significance of business contracts
Business contracts set the tone for the upcoming relationship, build rapport, and streamline transactions. They are a great way to represent your brand and show professionalism and commitment. That's not all, either.
Here, I have compiled three common reasons reinforcing the importance of contracts in business —
- Help clearly define the expectations of all parties
- Protect all parties if those expectations don't get met
- Establish the price of the goods/services provided
To summarize, business contracts include the right and obligations of those agreeing and make everyone legally bound to those terms. Digital contract management software automates these contracts and simplifies execution.
5 common challenges in business contracting
From limited transparency to lost value, the issues you may face when dealing with business contracts are immense. Here, we delve deeper into the top 5 barriers to efficient contracting.
#1 No way to track and address contracting requests from business teams
There is no simple way to triage, record, and ticket contract requests. Sales teams must use additional applications in addition to the CRM in the absence of an integrated contract request experience. They send an email, phone call, or direct message to someone in legal to ask them to create the contract when a new sale is about to happen.
#2 Manual contract approval processes, leading to delays
Say, an organization implements a manual workflow for contract approval. In this case, the business must manually distribute contracts for approval while requesting revisions at each stage. Emailing contracts to several persons typically entails doing this.
Further, this manual method is risky, slow, and ineffective. What happens if a contract disappears into someone's inbox? What if the wrong person ends up approving the contract?
#3 Increased risk due to decentralized contracts
Consider a scenario in which you save your contracts manually using filing cabinets, fragmented digital workflows, email servers, and shared drives. The security, usability, and management of your contracts may be jeopardized in that situation. They are therefore easy to lose.
In addition, manually maintaining version control, enforcing contract security preferences, tracking crucial dates and milestones, and supporting archiving and retention standards can be challenging.
These storage techniques may also undermine contract performance, raise risk exposure, and decrease control. This makes finding contracts extremely impossible.
#4 Poor understanding of contracting processes
Many organizations lack confidence when approaching their contracts since they don't fully comprehend their contractual process. The importance of contracts makes it imperative that you understand your contracting process, recognize your areas of weakness, and actively work to improve.
Knowing your contracting process means you are aware of the lifecycle stages that cause the most delays, how long it normally takes to move from one to the next, and their respective reasons. It also entails being aware of the contracts in your business that drag on and take longer to process than others. Since no data is collected on response times and negotiation rounds involved in the contracting process, there is no continuous improvement in the contracting process.
Without this knowledge, all efforts you make to increase the efficiency of your contracting would be based on speculation and not be supported by data. This is hazardous since it's simple to form false assumptions in the absence of accurate information.
#5 Inefficiencies in the contracting process because of working in silos
No sync between applications demands the manual entry of counterparty information in CLM, increasing the chances of error. Since legal and sales are using separate systems that aren't communicating with one another, there is no insight for sales teams on the status of the agreement.
Moreover, context switching between platforms has demonstrated a loss in productivity. For instance, sales teams need to leave the CRM to execute a customer contract. This lack of transparency in the contracting and sales processes considerably increases cycle times.
-> Read Now: 5 Contract Management Best Practices To Deploy For Handling Contracts Effectively
How does CLM make business contracting easier?
Digital contract management software makes it effortless to create, manage, share, and archive business contracts. It enables internal business and legal users to automate contracting processes and get business intelligence from those contracts.
And yes, business contracting is undergoing a significant transformation right now. These cloud-based CLMs manage the whole contract lifecycle with ease using workflows, templates, and metadata extraction.
The following are some tangible benefits of using digital contract management software:
Amplifying collaboration: Business contracting tools tear off any communication barriers previously lived forever within legacy CLM systems. They further simplify interacting with your internal stakeholders or external counterparty. They allow several users—including counterparties—to edit a document at the same time. All modifications get saved on a single version when using an autosave option.
It’s possible for you to communicate effectively without leaving your contract and get every input you need from your teams.
Contract automation: Contract automation makes manual operations like ticketing, triaging, and data analysis faster and easier to do. This gives you and any team in the company full control over your contracts without having to spend more time or money managing them. Instead, business teams may streamline their contract lifecycle to eliminate overlaps and quickly spot mistakes with the use of data, making your contract management far more streamlined and effective.
Digital contract management software speeds up contract creation with ready-to-use templates. SpotDraft takes this to the next level by providing the ability to edit contract templates using a plug-in called DraftMate. Experts using these tools have seen an incredible jump in signing rates and a worthy fall in approval time.
Contract automation tools also automatically identify contract expiration dates and send renewal notifications and reminders to the respective teams.
Gaining insights & reporting comprehensively: With digital contract management software, you are set for success as you can measure your contracting process and plan for improvements if in case. For instance, at any moment, you could get the exact number of contracts executed, the time you took for each type of contract, average negotiation rounds by contract type, and much more.
Also, at the strategic level, the data collected in a digital contract management software can be reported in a way that highlights critical issues like –
- Lost revenue as a result of vendor and/or customer types' delayed payments
- The relationship between the time taken to create a contract and its ultimate profitability
- The specific financial and operational effects of contract noncompliance across the organization
Templatizing high-volume contracts: Self-serve contracts are notable as it empowers business teams to create, negotiate, and execute contracts with little to no assistance from the legal teams. They are apt for low-value or standardized contracts like NDAs, MSAs, and vendor agreements.
Further, high-growth companies usually have aggressive targets to achieve. Self-serve contracts help these firms close deals swiftly while simultaneously taking the burden away from the legal. Subsequently, legal teams can focus on high-value work.
By implementing self-serve contracts, you get complete visibility into your contract lifecycle, better versioning, and audit logs of contract activity. It takes the friction from legal agreements and saves time.
Getting an AI assistant for your legal needs: Employing AI-powered CLM platforms help you analyze legal agreements and find out those clauses or provisions that have worked well. It also helps in contract metadata extraction, summarizing contract information as digestible vital pointers.
Intelligent contract management tools save legal costs and eliminate losses due to poor negotiation or contract drafting. Further, they develop a hub of all business contracts and alert users to essential functions they may need to take, such as filings with regulatory authorities or approaching deadlines.
“Digital contract management software makes contracting self-serve for business teams, integrates with CRMs like Salesforce and HubSpot, enhances communication with legal, increases visibility on contract status, and most significantly, speeds up deal closure.”
What are the positive outcomes of efficient business contracting?
Favorable results of efficient contracting include forming and facilitating deep relationships with stakeholders while minimizing business risk significantly. Other benefits of digital contract management software include –
The vast majority of modern contract management systems provide a clear audit trail and rigorous compliance oversight. Identifying potential high-risk policy or regulation violations through an automated supplier contract review is another benefit of an effective contract management system.
Make sure your contracts are encrypted and permission-based to guarantee that the right people have access to them in terms of data security. With the help of CLM, you can identify the sources of friction before they become expensive problems.
CLM tools have automated workflows that may be customized to speed up contract execution. You immediately regain control over all of your contracts and templates when you implement a well-thought-out contract workflow, including creation, approval, management, and archiving.
Enhanced filing system & organizational efficiency
A value-added document management system like CLM will also help you find the information you need faster. It enhances organizational efficiency by creating and storing standardized contract language and templates. Also, it establishes seamless integration with your preferred tools, such as Salesforce, Dropbox, Box, and Google Drive.
Accelerated contract review & execution
To speed up the contract process from start to finish, CLMs automate extremely complex approval sequences. Improvements in team collaboration may result from a combination of parallel and conditional approvals. You can make use of e-signatures to speed up the process further and cut down on time.
FAQs about business contracting
What are business contracts?
A business contract governs any transaction in a business environment. Simply put, it's an agreement between parties that has a binding effect. The buyer or the seller will typically create these business contracts and outline the particular conditions, such as promises made by each party, when each would fulfill the promises, what they would exchange, and when payment for these products or services is due.
What are the types of business contracts?
Some typical business contracts include sales contracts, vendor agreements, service agreements, NDAs, user agreements, and employment contracts.
A note of closure
Now, you have insight into how effective contracting offers value for all firms equally. So, start learning how to win back 70% of the time spent on contract admin tasks with SpotDraft.
If you don't see yourselves as just a legal person, but as one working continuously towards the larger vision of your business, it's time that we connect. Book a free demo today.