Thriving businesses need contract management processes that can scale with their growth. Without the right contract management process, you can quickly lose sight of details that matter: failures of business partners to deliver on time, your business’s own obligations, potential revenue streams, legal and economic risks, and more.
Unfortunately, many managers don’t know how to spot common warning signs that their contract management processes will not scale. If you find any of these six problems, then you know that it’s time to find a better approach than the one you currently take.
Velocity and Control Are Mutually Exclusive
Your business’s legal team spends time reviewing the details of every contract. The lawyers understand the importance of precision, and they know that even one mistake could change the outcome of a contract.
Your sales team, however, probably focuses on closing deals as quickly as possible. Sales representatives want to complete deals so they can earn commissions, move on to the next contract, and help grow the business.
Since legal and sales teams have different perspectives, contracts can be a source tension between the departments. If you find a small amount of tension when handling one contract, expect the problem to grow when you need to process dozens of contracts. More often than not, the legal team digs in and refuses to move until it completes a thorough review. When this happens, the process becomes exasperatingly slow from the sales team’s point of view.
Solution: You can use contract management software to ensure that every contract sent from sales starts with an approved template, one that the legal team has already reviewed. If there are changes to the language, the software can alert the legal team to review the parts of the contract that have been modified. If there are no changes, the legal team can confidently approve the contract for signature. Either way, the process takes less time and the company’s interests are protected.
Manual Processes Create Bottlenecks
Manual contract processes (or person-to-person processes relying on email) will burden your growing business. When you rely on manual processes, you accept human error, limited process controls, and bottlenecked contract cycles. These, in turn, create small delays that snowball into missed opportunities: a late contract, a failed delivery, an error-laden quote.
Solution: When you automate processes, you remove these pain points and create a clear path for contract management. Efficiency comes from electronic workflows in which contract-related tasks are maintained by the contract management software following rules that once underlay the old manual processes. Automation also populates contracts with data once, based on reviewed records and authorized data entry. Manual errors made by reentering known business data cease; and new data entered for particular contracts can be confirmed during the review process.
Information Silos Limit Visibility
Information silos form when departments don’t share information with each other. Even small businesses with single locations find it difficult to share information across departments. The problem becomes more serious when companies grow and have personnel in different cities, states, and countries.
Without access to a centralized contract management system, silos deepen and become a drag on growth.
Solution: A contract management system can bring all contracts for all departments together in one electronic repository. Access to the documents can be permissioned so that departmental security is maintained. Related information (such as spending under contract, sales revenues, and risk factors) can be integrated electronically so that reports convey the whole picture of contract performance, drawing from sources across the business.
Inconsistent Legal Language Causes Repeated Review
Since contracts are legal documents that define the responsibilities of all parties, you must use consistent language reviewed by the legal team. Inconsistent language forces lawyers to review each contract and all its terms, sometimes repeatedly during negotiation. That slows the process and limits success as your company grows and deals become more frequent.
You may not feel that you have a problem with contract language now. As your company grows, though, more people will need contracts, often in a hurry. Suddenly, you could have dozens of people adding their own terms to contracts to get things done fast only to find that legal needs to review the new terms at the same slow pace.
Solution: Instead of relying on draft contracts started by business users from desktop copies or the contract used for their last deal, use a contract management system that contains templates for each contract type with language already reviewed by your legal team. In a system like this, business users start a contract request and contract managers fulfill the request with a pre-approved template.
As changes are made, negotiators can refer to a clause library containing fall-back provisions that have also been reviewed by legal. If changes go beyond the approved language, the system can require that legal review the new language before the contract can be sent for signature.
Contract Changes Fall by the Wayside
Contracts change during negotiations and even after you have reached agreement. A small business may find that it can keep track of contract language changes in the back and forth of negotiation without much trouble. After a contract is approved, a small business can make time to negotiate an amendment or change order. It may even record that change in a spreadsheet so that it is connected to the original master agreement.
Growing businesses, though, need better methods to make and track changes. The number of contracts grows and so does the number of people authorized to reach agreements, whether in sales, procurement, licensing, or acquisition. It is not long before the press of business keeps the contracts and subsequent changes to them from reaching their home in a central shared drive or even getting adequately reviewed or recorded. This creates a fast-growing risk to the organization.
Solution: A contract management system keeps contracts in a central location and tracks changes to them in three important ways:
- Through version control, changes to a draft contract can be recorded within the document and between versions of the same document. Automated redlining can show any change that a counterparty has made to a draft contract once it is returned during negotiations.
- Through contract-centric storage, a system can associate a master agreement with any documents representing an amendment or change order. These related documents can have their own metadata that alert business users across departments to the changes as well as to new obligations or deadlines.
The discipline imposed on all the contract activity of a growing business is one of the key values that only a contract management system can provide.
Procurement Cannot Keep Pace with Demand
In order to produce goods and services, companies need many things: raw materials, components, professional information, related services, office and infrastructure, finance, advertising, etc. Procurement uses contracts to acquire these things at the lowest cost consistent with quality. In a small business or one just starting out, a single supplier and contract may suffice for procuring any one of these business needs. Some purchases may be simple enough that no contract is even needed.
But as the business grows and production increases, procurement needs more contracts, often with different suppliers in different locations. These contracts may call for more complex terms affecting purchases of larger quantities over longer time periods. With more of the business relying on on-time delivery , failures on the suppliers’ part need to be protected against in the contract language.
In a growing business, procurement has its hands full giving due diligence to suppliers, goods, and services; managing more numerous and complex contracts can become an obstacle to getting things done. Legal and technical review of procurement contracts is still required, but shepherding contracts to the right people for review becomes a process bottleneck that affects everyone else in the company who is waiting for the goods and services they need to keep production going.
Solution: Using a contract management system is a smart move for procurement. Contract templates and terms can be prepared in advance, and the language reviewed by legal beforehand. Procurement officers – or even business users – can use these contracts to purchase what is needed with minimal review time. Having your own paper in place and ready to sign creates an incentive for suppliers to agree to your terms.
Major purchase agreements can remain visible to the whole organization so that buyers are more likely to be aware of discounts and terms around delivery. If a part of the supply chain fails or is at risk (think weather events and political upheaval) the system can reveal alternative suppliers so that crucial materials will not be delayed.
Start Thinking Big, Even If You Are Still Growing
All businesses, big and small, need efficient contract cycles that focus on completing negotiations and boosting revenues. If you see any of these six warning signs that your contract management process will not scale, then you need to find a contract management software solution that will make every step clearer and more efficient.