Contract Efficiency: Enhancing Workflow for Better Results

Did you know that your organization could be losing up to 9% of its total annual revenue due to poor contract management? Now more than ever, it’s important for companies from all industries to take a hard look at their contract processes and find ways to bring efficiency back to contract management.

One of the best ways to drive efficiency is to evaluate your contract workflows, identify the problems, and incorporate changes, often involving technology, that solve those problems. Here’s how you do it!

What Does Efficient Contracting Look Like?

When you emphasize efficient contracting, you strive to establish contract processes that produce effective agreements without wasting unnecessary time or money. For many businesses, this is a Herculean task, especially if they have been stuck in the same contract processes for years. As the saying goes, old habits die hard. Human beings are creatures of habit, so convincing them to change the way they do things can be extremely difficult.

To help you understand where your business falls on the scale of efficient to inefficient contracting, let’s take a look at some of the characteristics of both.

Characteristics of Efficient Contracting

The characteristics of efficient contracts are:

  • Clear and Specific Terms. Efficient contracts have clear, specific, and unambiguous terms that outline the rights and obligations of each party to minimize the likelihood of misunderstandings.
  • Aligned Incentives. Contracts should align the interests of all parties involved to promote cooperation and reduce negotiation times.
  • Flexibility and Adaptability. While contracts should provide certainty and stability, they should also allow for some degree of flexibility to accommodate changes in circumstances.
  • Cost-Effective. The process of negotiating, drafting, and enforcing contracts should be cost-effective relative to the value created by the agreement.
  • Information Flow. Efficient contracts facilitate the flow of relevant information between internal and external parties, enabling them to make quick decisions and fulfill their obligations effectively.
  • Long-Term Perspective. Efficient contracting sometimes involves considering the long-term implications of an agreement in order to prioritize establishing sustainable relationships.

Characteristics of Inefficient Contracting

The characteristics of inefficient contracts are:

  • Lack of Clarity. Inefficient contracts may contain vague or ambiguous language, leading to misunderstandings between internal or external parties.
  • One-Sided Terms. Contracts that heavily favor one party over the other typically lead to extended negotiation periods that are, inevitably, a waste of time.
  • Rigid and Inflexible Terms. Contracts that lack provisions for adaptation or renegotiation in response to changing circumstances may also lead to extended negotiation periods.
  • Higher Costs. Inefficient contracting processes eat up the legal team’s time, which can lead them to be forced to outsource work at a higher cost.
  • Uncertain Enforceability. Inefficient post-signature processes may make it difficult to ensure that contract obligations are consistently being met on both sides.
  • Short-Term Focus. Contracts that prioritize short-term gains over long-term sustainability usually lead to suboptimal outcomes.

How to Enhance Contract Efficiency with CLM

There’s no denying that technology plays an essential role in driving contract efficiency for today’s businesses. Contract Lifecycle Management (CLM) solutions are especially useful in this endeavor. They can streamline and automate the entire contract management process, from creation to execution to renewal. They also provide an added layer of visibility and communication for both internal and external parties at any stage of the contract lifecycle.

Let’s take a closer look at exactly how you can use a CLM tool to boost contract efficiency in your organization.

1. Establish Clear Lines of Communication

Effective communication ensures that all stakeholders understand their roles, responsibilities, and expectations throughout the entirety of the contract lifecycle. With an open dialogue in place, internal stakeholders and external parties can minimize delays and misunderstandings. They can openly address any concerns, resolve issues promptly, and negotiate terms more efficiently. 

It’s also important to make sure the right stakeholders are involved at the right points of the contract lifecycle. Take time to get to know everyone who touches the contract management process, including legal, sales, procurement, and even finance. Clearly define each team’s responsibilities and ask them to identify inefficiencies in their part of the process. This can help you make improvements to the various pieces of the contract workflow.

A CLM solution helps open up lines of communication by providing a centralized platform for collaboration and information sharing. With a CLM tool, stakeholders can access contract data, documents, and communications in real-time, regardless of their location. This accessibility promotes transparency and accountability, enabling all parties to stay informed about the status of contracts and any updates or changes.

2. Embrace Templates and Standardization

Templates act as a structured framework for drafting contracts. They can help reduce the number of errors in a draft and cut down on both drafting and negotiation times. If you know that one template works better than another for a third party from a certain industry, you can eliminate redlining and back and forth negotiations by starting with that template. Stakeholders outside the legal team can also use pre-approved templates to draft contracts on their own without needing input from an attorney.

Standardization further enhances efficiency by establishing common terms, clauses, and workflows that meet requirements and align with organizational policies and best practices. Standardized contracts enable faster review and approval processes, as internal stakeholders can quickly identify and focus on key provisions without getting bogged down by unnecessary revisions.

CLM solutions offer centralized repositories perfect for storing and managing template libraries, ensuring that users have easy access to the latest versions of approved templates. They also typically offer pre-approved clause libraries that allow stakeholders to make adjustments to contracts to meet negotiation demands without waiting for approval from a lawyer.

3. Streamline Approvals

Inefficient approval processes can lead to prolonged negotiation cycles and missed deadlines. Approvals are something that should be quite simple, but they can be easily overlooked. By streamlining and automating the repetitive tasks in the approval process, teams can save time and reduce the likelihood of errors.

A CLM solution is a great asset for streamlining approvals because it can automatically route the agreement to the right person and send a corresponding notification alerting them that the contract is ready for their approval. These real-time alerts keep stakeholders informed of all pending approvals and deadlines as well as any other demands that require action.

CLM systems often include e-signature capabilities too, allowing authorized signatories to digitally sign contracts from anywhere, at any time, further expediting the approval process.

4. Automate Tasks

As technology continues to advance, we can hand off more and more repetitive or routine tasks to automation. Automating tasks frees up contract stakeholders, especially the legal team, to devote their time to more high-value work that contributes to larger company goals. It also speeds up the overall contract process because we no longer have to wait for a human to complete a given task before the contract can move forward to the next step.

CLM solutions offer robust automation capabilities that streamline various aspects of contract administration, including document generation, approval workflows, notifications, and reminders. They can, for example, automate the creation of contracts using predefined templates, pulling in relevant data from integrated systems or databases to populate contract fields automatically.

Perhaps even more importantly, CLM tools automate approval workflows by routing contracts through predefined review and approval steps, automatically triggering notifications to stakeholders when their input or approval is required. Real-time dashboards provide visibility into the status of contracts, allowing stakeholders to track progress and take timely actions to make sure contracts are always moving forward.

5. Monitor and Improve

Monitoring contract data allows you to gain valuable insights into contract performance and identify areas that need improvement. By systematically tracking key metrics like contract cycle times, renewal rates, and contract value, you can pick out trends and use them to refine existing processes or create new ones.

With the growth of AI, we inevitably also see organizations doing more with their data. AI enables data analysis on a whole new level. CLM tools often utilize AI in their reporting and analytics capabilities to provide more nuanced insights into the contract lifecycle. These insights enable stakeholders to identify bottlenecks, inefficiencies, and compliance gaps, then take proactive measures to address those issues.

CLM solutions can also integrate with other enterprise systems, such as CRM and ERP platforms. Through these integrations, organizations can consolidate contract data in one place and gain a more holistic view of their contractual relationships and obligations. This integrated approach enables organizations to identify opportunities for standardization, optimize contract terms, and negotiate more favorable agreements.

Benefits of Better Contract Workflows

Having better contract workflows in place benefits both contract stakeholders and the entire organization. Here’s how some of those benefits manifest.

1. Save Resources

Efficient contract workflows save time and money by streamlining processes, reducing manual efforts, and minimizing errors. Contract stakeholders will be able to use their time on the most valuable activities rather than wasting hours every month on small, routine tasks. With less errors thanks to standardization and shorter cycle times as well, the organization can enjoy increased revenue and better relationships with third parties.

2. Reduce Risks

With more standardized contract processes in place, teams can ensure that requirements and obligations are always being met. Notifications and alerts minimize oversights and the likelihood of missing an important deadline. Plus, with more people able to see and track the contract workflow directly in a CLM tool, there is greater accountability for each stakeholder.

3. Create Better Relationships

Internal and external relationships benefit from better contract workflows. Internally, stakeholders enjoy more clarity and alignment on goals thanks to increased visibility, communication, and collaboration. External third parties will have an overall better experience with your organization as they work through the contract lifecycle faster and have the ability to communicate more effectively.

Whether you want to improve relationships between your internal stakeholders, speed up your cycle times, lower the amount of human error in your contracts, or simply give yourself and your team more room to breathe, building efficiency into your contract workflows is a great place to start.