4 Key Contract Management Software Features
Inefficient contract management can cause a host of problems, not the least of which is money lost due to poor organization of the contract lifecycle. A lack of organization in contract management is often caused by issues such as the inability to follow-up with contracts, inability to route documents to the appropriate person, lack of information on major contract milestone, and inadequate knowledge about best practices for corporate governance and compliance.
These four challenges are almost always present in paper-based contract management systems. If your company is still having second thoughts about making the shift to a contract management system, then you should consider how a digital system overcomes these challenges.
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Prevent “Sign and Forget” Syndrome
Most companies will not admit it, but the “sign and forget” syndrome takes place with all types of contracts. Once the contract is signed, it is stored in a file cabinet to gather dust. Contract management software prevents this issue by making sure that appropriate contract lifecycle management takes place.
This means that post-execution tracking and management tasks are already built into the contract lifecycle and pre-assigned to the relevant parties. While post-signature activities may still happen in paper-based systems, this is the exception rather than the rule. Furthermore, when it does happen, it is usually open to a higher risk of error. A comprehensive contract management software takes all the guesswork out of contract post-execution, enforcement, evaluation, and renewal.
Facilitate Internal Coordination
Here’s a typical scenario: Company XYZ uses a preferred vendor for its business applications, and the preferred vendor offers various modules of its software. The business development department is located in New York, the IT department is in Omaha, and the headquarter office is in Denver. While the three locations may operate independently of each other, they all have to negotiate with the same preferred vendor for business applications.
If the three units are using paper-based systems paired with email to finalize contracts with the preferred vendor, then they are all three at a disadvantage at the bargaining table. Is the business development department aware of the pain points of the other two offices? Does the IT department use the same key decision-makers as the other two offices? You can overcome a lack of internal coordination by standardizing the negotiating process through a professional contract management system, which can be visible at all times by the three departments while also centralizing the storage of key documents. This lowers operational cost and increases efficiency in negotiations.
According to Gartner, about 60% of all supplier contracts automatically renew without the knowledge of the buyer simply because the buyer fails to give notice of termination. What’s even more concerning is that over 50% of those automatic renewals happen more than once.
Even though your company may financially benefit from such an oversight from the buyer, your company’s goodwill can take a hit if you do not provide an appropriate heads up to the buyer. Additionally, your company may be liable for damages for potential misrepresentation or breach of contract. To prevent this kind of problem and take a more proactive look at milestones, contract management software allows you to create customizable workflow steps to keep on top of milestones, notify responsible parties by email through automatic reminders, define escalation procedures, and send steps sequentially or simultaneously.
Observe Corporate Governance and Compliance
Fulbright & Jarowski has estimated that 60% of corporate litigation in the U.S. and U.K. is caused by contract breaches. When you consider this statistic on top of the need for corporate governance, particularly for publicly traded companies in highly regulated industries, then you realize the need for a tight control on contracts.
A main, yet tedious, requirement for compliance is tracking contract history for auditing. Trying to keep all documentation and communications across large teams can be a full-time job of its own; fortunately, contract management software provides a full audit trail for you. For example, Contract Logix contract management software provides a full audit trail for Sarbanes-Oxley compliance and empowers your team to maintain compliance standards and necessary reports. It also provides a design wizard tool that allows easy formatting of any type of report.
Old fashioned contract management practices no longer suffice to stay on top of the contract lifecycle. Contracts need to be monitored with a watchful eye from implementation to termination, and such attention to detail is only possible with a contract management tool that brings the process into the spotlight, integrates departments, highlights milestones, and ensures proper compliance.