Since every business transaction is first formalized by a contract, an average enterprise generates thousands of contracts every quarter, and more as and when business grows. While many companies do not immediately understand the need to implement contract automation at the early stages, the opportunity costs associated are humongous especially when strategic pivots (like acquisitions, market expansion, etc.) happen for the business.
In this guide, we explain all you need to know about contract automation, take you through the best practices, and talk about the impact of technology and how you should evaluate contract automation software.
Contract automation is the process of leveraging technology to unify, build workflows and automate steps in - your contracting process to minimize time and resource consumption, accelerate turnaround times and reduce dependencies on the legal team.
Contrary to the norm, contract automation is as much for your non-legal teams as it is for your in-house counsels. For example - contract automation can help your sales teams create self-serving agreements by leveraging lawyer-approved contract templates. Not only does this minimize back-and-forth conversations, it altogether eliminates reviews for your standard contracts.
While contract automation is for every team in your business that produces or works with a contract, they are largely under the ambit of the in-house legal team. This is because your in-house legal team is equipped with the knowledge and expertise to both set up legal automation processes and can handle questions related to operational challenges in your agreements.
In early-stage companies that do not have an in-house legal team, the authority of contract automation should lie with the founders, who are the executive authority on all business transactions.
Onboarding a contract automation software typically impacts the following teams the most:
Contract automation can simplify archaic contracting practices and drive direct cost and time impact to your business. The 5 key benefits contract automation provides your business are-
With the help of contract automation software, any team across your business can create new standard contracts in minutes and with minimal effort. This means better TAT on your sales contracts or employment agreements, and hence, faster business
Contract automation software are built for scalability. This means, they are equally adept at handling and processing a high volume of contracts and readjusts with your growing business and its growing contract workload.
Onboarding contract automation tools give businesses the freedom to grow without spending additionally on onboarding professional expertise to manage compounding work. This means more savings with the same initial cost to the business.
By streamlining data collection, contract creation, and post-execution inventory management, contract automation tools help remove the need for constant manual intervention. This means lesser follow-ups with the legal team or approval conversations.
Take for example a typical sales agreement. After conversations with the buyer, the sales team can input the deal value, deal tenure, and other key details in the contract automation software and generate contracts without the need to raise a request with the legal team. The appropriate authority immediately receives the created contract and both parties can sign the agreement in a cycle that is 3x faster than the typical tenure of a contract.
Contract automation helps strengthen the element of accountability in the workflow by allowing teams to track contract tasks, keep tabs on contract stages, and immediately identify bottlenecks when a contract is stuck at a particular stage.
This allows for better redressal mechanisms and allows all contract stakeholders to identify opportunities for process improvements.
With contract automation tools, an organization enjoys better workflows and improved data standardization. Sales or finance can now own their contracts without having to include other teams in the process, this helps ship contracts faster and frees up time for all your business teams.
Here are a few examples of how contract automation can help individual teams in your business perform better -
Benefits of Contract Automation for Legal Teams
• Ensure consistency in legal language through the use of pre-approved templates.
• Effective tracking of contractual obligations, such as renewal dates, contract terms, and more.
• Audit contract management framework and develop KPIs for better goal-setting.
• Remove bottlenecks in all levels of the contract lifecycle, including redlining and signatures.
Benefits of Contract Automation for Sales Teams
• Spend less time on legal reviews and close deals faster.
• Generate contracts quickly using pre-approved clauses and versions from the library.
• Simplify and save time on processing legal requests.
• Use eSignatures to collect approvals from multiple stakeholders and speed up the entire process.
Automating specific parts of your contract lifecycle, can you build a robust contract management process and aid you to be more data-driven and resource-efficient.
Following are the stages where contract automation can benefit your business:
Contract automation helps you accelerate manual processes, ticketing and triaging, and data analysis tasks, this helps you and any team in the business gain complete control of your contracts without investing additional time or resources. Business teams can instead optimize their contract lifecycle to smoothen redundancies and identify errors faster with the help of data to make your contract management much more refined and efficient.
Contract automation does not need to start with an expensive purchase of a dedicated contract automation software, it can instead be optimizing your organic contract workflows. Here are a few basic steps that can help you get started:
Additionally, it is also good practice to use contract review playbooks to standardize contract reviews. These playbooks also complement your efforts when setting up contract automation software for your business.
It is important to note that while organic contract lifecycle optimization can add value to your contracting experience, it is no substitute to investing in a dedicated contract automation software primarily because of three reasons:
A Contract Automation Software is a single, consolidated digital platform that enables teams to create and execute end-to-end workflows to automate all parts of the contract lifecycle.
Compare this with a typical Customer Relationship Management (CRM) software used by sales teams. And just like a CRM unites all prospect and customer data and interactions on one dashboard for the sales team, a contract automation software helps organize, streamline, improve workflows and manage contracts for all teams producing or working with contracts in your business.
A contract automation software typically focuses on simplifying and improving workflows from the earliest stages of your contract lifecycle. True contract automation does not start without automating your contract requisition or creation stage.
After the initial set-up, contract automation tools let members from any business team create a fresh contract without the need for legal intervention, just by selecting a pre-existing template and editing basic metadata fields with key details like - deal value, execution date, deal tenure, etc.
Once the key details of the contract are input into the template, a contract automation software automatically fetches data from the contract and realigns the document language to ensure error-free contract creation. This created contract is then sent to the appropriate authority for approvals based on your pre-assigned workflow structure or rulebook.
For example - equipment purchase contracts below $10,000 are to be sent to the finance manager while contracts with a deal value over are to be sent to the CFO for approval.
Post-approval, your contract automation software helps you accelerate execution by allowing native or integrated eSignature options. After the contract is signed by both parties, it is conveniently stored in a secure and integrated cloud location for access at a later date. Contracts stored within a contract automation software can typically be fetched based on contract names or key details.
Some contract automation tools also analyze key contract details securely and set automatic reminders and notifications for renewals or updates depending on the contract expiry date or other custom contract fields.
A contract automation software should supplement your everyday workflow with automated processes and minimize your workload instead of imposing the burden of reconfiguring your existing processes. Hence, it is important that your contract automation software has the following features -
Allows legal teams to create pre-approved legal clauses and documents that can be used by other business teams to generate self-serving contracts. Your contract automation software should be able to independently identify changes to the key details, e.g. - legislative authority, deal value, etc., and suggest changes to your template to maintain compliance.
A native full-featured word processor to edit and modify legal documents online without compromising on experience. For example - the SpotDraft Editor is a native contract editor built into the SpotDraft platform that has all the features of MS Word but is more attuned to understand legalese and legal documents.
Recommended reading: Why do lawyers need an upgrade from MS Word?
Allows multiple users, including counterparties, to simultaneously make changes to a document. With an autosave feature, all changes are saved on a single version.
A unified flow of all track all changes made to the document by the different users, with time and date stamps. The contract automation software should also be able to keep track of all versions and changes for third-party contracts.
Allows teams across the business to share knowledge, take ownership, and operate independently. Your contract automation software is built for the use of all your business teams. It is therefore important that it integrates with and can initiate contracting from, the respective SaaS tools used by your business.
For example - SpotDraft offers custom API integrations so sales can independently initiate a contract from Salesforce. The data around the contract is stored on the SpotDraft platform and can be later accessed by Finance during their audit rounds.
Allows both internal stakeholders and counterparties to execute contracts faster, simpler, and in a systemic manner. If you have purchased a dedicated eSignature tool, your contract automation platform must also be able to integrate with your tool of choice.
Stores all contracts chronologically and securely. By the use of tags and filters, it is possible to sort and retrieve contracts quickly. Contract automation tools must also be able to automatically identify contract expiration dates and send renewal notifications and reminders to the respective teams and add plug opportunity losses.