The Value of Automated Contract Routing
Many organizations — despite insisting that they have an adequate contract management process — in reality have a “sign and forget” mentality that leads to costly inefficiencies.
“Most companies do not actually manage their contracts during the term of those agreements despite the fact that key provisions need to be monitored,” a 2011 Forbes article concluded. There are deadlines that trigger penalties, milestones that result in bonuses that must be collected actively, and even oft-ignored automatic renewals. Each of these has a significant impact on a firm’s bottom line.
A rapidly increasing number of astute organizations are now implementing contract management system to address this lack of truly effective management in traditional paper-based “contract management.” Especially with the evolution of relatively inexpensive cloud-based solutions, it’s hard to argue against a decision to use contract management software.
Contract Routing: A Clear Opportunity for Savings
While mismanagement of in-effect contracts is one of the most common failings of companies without a contract management system, there are other typical shortcomings that the software can address. One of the most important is document routing — from contract creation through negotiation to completion.
With a traditional paper system, contracts have to be manually delivered to the necessary signatories, in the proper order, at exactly the right time. Not only is this process labor-intensive and time-consuming, it’s also ripe for human error. It only takes a few mistakes to appreciate the hassle and expense that can occur when people are working from different contract versions, or when a critical review (e.g., legal) is overlooked.
Consider a large, multi-function organization such as a hospital. Every day, contracts are created with suppliers, physicians, patients, outsourced service providers, insurance companies, labor groups, etc. The flow chart of who needs to review and sign all these contracts (and when they need to do it) can quickly become a jumble, leading to costly delays, poor patient care, unnecessary contract extensions, and a host of other problems. With their wide diversity of activities, hospitals without sufficient software support understandably struggle to handle all the contract paperwork without making mistakes.
However, with hospital contract management software, the hospital can coordinate its many operating units into a comprehensive healthcare contract management system that ensures contracts are forwarded to the correct people at the correct time, with all the necessary supporting documents and with clear review deadlines.
With contracts that fall outside of the norm, the automation of the contract approval process can be particularly valuable, flagging contracts that need to be taken out of the normal approval flow and reviewed by other parties (e.g., to approve special pricing or terms). Contract management software allows this to occur seamlessly, with no confusion.
Integration of All Contract-Related Functions
The value of automated document routing can particularly be seen during the negotiation stage, where this automation can increase speed and accuracy, while ensuring proper strategic and legal review. But as with all aspects of a quality contract management software system, document routing fits together into the larger puzzle of overall contract management. For example, regarding the problem of poor contract monitoring discussed above, automated routing can make sure the contracts are in the hands of the people whose responsibility it is to do the monitoring.
It’s time for organizations to clear out the filing cabinets and to stop leaving critical contract documents in a pile of paper on someone’s desk. Companies that aren’t already utilizing a contract system should take a long look at the cost vs. benefits of beginning to do so. What they’ll discover is a golden opportunity to improve how they do business.