The Benefits of a Contract Management System
The function of a modern, comprehensive contract management system
To describe the function of a 21st-century contract management system, we find it helpful to start by explaining what it is not.
- A contract management system is not a file cabinet or computer desktop folder with all of your contracts in it.
- It’s not a legal staffer assigned to review agreements originating out of specific departments.
- A contract management system is not an ideal workflow that everybody tries to follow, but realistically can’t.
- It’s not a key-person who “knows” everything going on in the business.
These may be ways an enterprise tries to stay on top of its contracting, but they don’t constitute a Contract Management System. Not by a long shot.
As of early 2019, a full-function contract management system is an IT platform through which your business assembles, negotiates, executes, amends, monitors, analyzes, and archives every agreement to which the business is, has been, or will be a party. A contract management system leverages artificial intelligence and natural language processing to “understand” the corpus of your enterprise’s agreements to help ensure you and your counter-parties comply with them and that future agreements contain consistent, beneficial terms.
A contract management system gives every employee the real-time access they need to existing and evolving contracts in order to do their jobs efficiently. It both streamlines and tightens the process of entering into new contracts, of performing on and enforcing current contracts, and of evaluating and learning from expired contracts.
In short, a modern contract management system weaves smart, efficient contracting into every facet of your business.
Notable applications of today’s contract management systems
You may be thinking: that all sounds great, but tell me about the practical applications. No problem. Here are some common benefits a contract management system can deliver for a typical organization.
Contracts with customers, in one form or another, represent the fruits of your sales team’s labor. Ideally, they deliver value to your business and your counter-party, but that’s not always the case. Whether because of salespeople’s essential impatience for closing deals, an unscrupulous actor on the other side, lack of coordination among your teams, or ordinary inattention to detail, the contracts your legal department puts into your sales channel sometimes come out looking far different and less-than-ideal. They may contain delivery schedules you’ll struggle to keep, disadvantageous pricing, or unnecessarily complicated terms.
A contract management system doesn’t just help remedy these problems, it eliminates them at the source. With a shared negotiation, editing, and e-signature-capable platform, sales teams can close deals faster without sacrificing precision. By giving all of your stakeholders’ real-time visibility into contract negotiation and assembly, a contract management system reduces the risk of error and ensures everyone has input to avoid coordination problems. AI-driven search capability boosts your ability to spot omissions and inconsistencies. The result: faster, tighter, smarter, and more profitable sales.
Obtaining the inputs and raw materials your business needs requires reliable and predictable sourcing relationships. Unlike your sales team, your procurement department stands in the shoes of the customer in these transactions. But, you still want to control the terms and counter-party performance of your contracts as tightly as possible.
A contract management system gives your procurement team the tools to stay in the driver’s seat: templates for every vendor relationship to speed contract assembly and to simplify the RFP process, transparency and smart analytics to drive vendor compliance with deliverables schedules and other obligations, and real-time access to new and current contracts to facilitate coordination among your departments.
Your finance team needs easy, instant access to contracting data that affect revenue and expense. In earlier days, this data wasn’t always readily accessible, fueling the risk of inaccurate financial reporting and planning. Worse, inconsistencies in contract terms could lead to unwelcome end-of-quarter “surprises” when, for example, an overlooked payment term in a procurement contract came due without warning.
With a contract management system, not only does your finance department have real-time input on contract pricing and other financial terms, but it also has AI-powered analytical tools to derive forward-looking insights from existing contracts, making financial modeling more nuanced and accurate.
Operations, Marketing, and IT
You are no doubt starting to get the picture about how a modern contract management system can transform your business. Here are a few more examples. In the realm of operations, stakeholders now have seamless access and input on key contract terms that will affect their departments, as well as the ability to examine the corpus of your existing contracts to understand obligations that drive operational priorities.
Your marketing team can now see the details of sales contracts in the pipeline and thereby analyze which of its marketing strategies led to the most beneficial outcomes for the business. In the realm of IT, a contract management system eliminates the headache of managing a patchwork of poorly integrated contracting applications, replacing them with a single, end-to-end, fully-supported solution.
As for your legal department, well, they’re usually the folks who need the least convincing to see the merits of a comprehensive contract management system. Virtually every legal team we’ve encountered feels the pain of (and often loses sleep over) managing enterprise contracting without the tools needed to vet, promulgate, and monitor mission-critical contracts.
And, don’t even get us started on the tales we’ve heard of hair-pulling frustration over time wasted on legal-administrative inefficiencies, like losing track of the “master” version of a draft in a slew of emailed red-lines, chasing salespeople for the fully-executed copy of an agreement, or reading line-by-line through past contracts to find precedent language.
It’s no exaggeration to say a comprehensive contract management system transforms a legal department by making contracting more consistent, transparent, and efficient for the whole enterprise. As an added bonus, it also reduces common tensions with other departments by helping to show how the skill and effort of a legal team align with the rest of the business.