Contracts lay the groundwork of key business strategies and relationships which is why businesses spend a great amount of time and resources executing contracts to their liking. As businesses grow, the number of contracts they deal with grows, too, along with increasing complexity and the ongoing need for amendments.

The contract management life cycle comes with several challenges that can slow down progress and cost your company money in terms of lost productivity and fines. Learning about these pain points and the consequences of poor contract management can help you adopt better practices.

– Bizfluent

Effective Contract Management provides businesses with unmatched productivity provided they address and manage the issues associated with ineffective, traditional CLM practices. Let’s take a look in detail at what those are:

1. Missing Contract Deadlines

Contract deadlines imply the end date or a rollover date when the contract automatically renews if it isn’t renegotiated or terminated. Using Excel sheets and Outlook for tracking contract dates, renewals, etc. results in missed renewals and terminations (unwanted auto-renewals) and re-negotiations due to human error, inefficient tracking, and lack of alerts. According to a study conducted by the International Association for Contract and Commercial Management, the average company loses about 10% of annual revenue due to poor CLM practices.

An agile, automated Contract Lifecycle Management system tracks all key dates while allowing you to set up auto-renewal alerts and customize reminders to be delivered as per your liking. Your teams can set up recurring reminders and can see all the key contract dates for the contracts they work on.

2. Lack of Contract Obligation Management

Effective contract obligation management is about ensuring that the contracting parties are fulfilling the commitments in the contract. It is essential to do so to know whether you are working as per the terms and conditions or if there is a breach of contract, missing important milestones of delivery, payment, etc.

As surprising as it might be, most businesses are still employing the manual extraction and identification of contract milestones, penalty clauses, etc. in Spreadsheets which results in missed payments and delays in collecting revenue due to inefficient data tracking, human errors, and lack of auto alerts. An enterprise CLM solution enables customized alerts regarding contract expiries, making you aware of upcoming renewals and other milestones so that contracts are never renewed unintentionally and obligations are never ignored.

3. Poor Compliance

Compliance management is the conformance with regulations and performance of obligations within the agreement. Companies today operate in very complex regulatory environments, and poorly managed contracts make compliance difficult if not impossible. Engaging in conventional methods like storing contracts in non-digital repositories results in issues like expired insurance certificates, approvals, permits, etc. as they lack crucial monitoring and compliance tracking functionalities.

According to a study by PRnewswire.com, companies have spent more than $180.9 billion on financial crime compliance. A digital Contract Management system enables the necessary clauses to be automatically included in all contracts, enabling a holistic approach to compliance. Businesses with contracting processes backed by a powerful contract management solution can respond to regulatory changes by smartly and quickly surfacing all active contracts that could be affected by the new regulations, if any.

4. Prolonged Contract Cycle Times

A contract cycle is the cycle from request to creation, approval, negotiation, signature and onboarding (or put-away). Many issues can lead to long contract cycle times like being unable to locate the proper template, or redlines sent back from a supplier being lost in emails, an approval bottleneck in the legal department, etc.

A digitized CLM solution enables self-service contract templates (for creating compliant contracts quickly), Clause Library (for streamlining contract building and negotiations), e-signature (for executing agreements faster and securely), etc.

5. Poor Collaboration/Communication Among Internal Teams

When teams use legacy systems for searching and analyzing contracts, it leads to misunderstanding, wastage of time, and poor compliance as those systems fail to track obligations or monitor regulatory changes. Since the contracts usually start with the legal team drafting them, they can be difficult for other teams without that legal knowledge to understand. This is what happens with business and project teams while dealing with complex agreements where they constantly have to reach out to legal/contract teams.

With a digital CLM platform, documents can be easily and compliantly created through the use of the available contract templates. It helps other teams gain real-time access for non-legal internal users and third parties for contract review, saving users a considerable amount of time and effort.

6. Lack of Contract Governance

Healthy contract governance is about ensuring that the agreed outcomes between your business and suppliers are being fulfilled. Its objectives are to develop strong relationships with suppliers to ensure delivery, commit to compliance, and deliver value to the business and its end-users. Keeping contracts in different file locations and manually going through workflows and contract processes lead to poor visibility into the contracts data, missing expiry and renewal dates, etc. due to the lack of data tracking and analysis features.

A robust Contract Lifecycle System addresses these issues by creating a single source of truth, defining key contracts, tracking any decisions, approvals, and changes automatically, setting the KPIs you want to measure and track performance, and much more.

Contract Management issues don’t even spare most large enterprises if they are not careful with their methods, but thankfully the impact of technology on CLM is quickly gaining momentum globally as more businesses are realizing its extensive benefits as a business value driver. With a comprehensive enterprise-wide contract management solution, businesses can face these challenges head-on to accelerate, scale and optimize business.