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What Exactly is Contract Automation? Definition, Benefits & More

A cartoon image of a man and robot working on a contract.

What is Contract Automation?

According to World Commerce and Contracting, the typical enterprise, on average, spends as much as $6,900 to draft, negotiate, and sign a simple contract. The cost of creating complex documents can go up to $21,300 or more. This cost can be attributed to the inefficiency and non-scalability of manual contracting processes. 

However, by utilizing contract automation software, companies can drastically reduce associated costs and improve their overall contract lifecycle management (CLM) process.

Contract automation focuses on using the power of machine learning (ML) and AI to streamline  and automate the contract lifecycle. Key touchpoints for contract automation are: 

  • Contract drafting
  • Contract negotiation and legal review
  • Approval and signature 
  • Contract storage, interrogation and analytics 
  • Renewals and expiration tracking
  • Obligation management

Contract automation can not only help enterprise legal teams streamline their workload and build a scalable contracting process, but also helps other business teams such as procurement, finance, and sales to come together on a single platform and collaboratively create and manage contracts. In addition, contract automation focuses on setting up contracting playbooks, business rules, and clause and template libraries to standardize and streamline contracting processes. 

In this article, we’ll take a closer look at the advantages of contract automation and the various application points, plus several bottlenecks and disadvantages associated with traditional management. 

Common Pain Points of Manual Contract Management

Modern-day business processes are evolving all the time and contracting is no exception. And yet, for many organizations, contracting remains a time-consuming, cost-intensive practice, the effects of which are substantial to annual revenue.

The key challenges associated with manual contract processes are: 

  • Effort duplication: Traditional contracting involves multiple touchpoints. As a result, stakeholders find themselves repeating the same tasks over and over again, sometimes across multiple platforms. This, in turn, leads to version control issues and avoidable errors. 
  • Lack of standardization: Contracts are often authored and managed in silos, which means that each business team ends up creating new drafts using non-standard contract templates and legalese that may be outdated or out of line with current company policies, which potentially increases risk exposure.  
  • Lack of visibility: Manual contracting processes and rudimentary tools are unable to offer the level of visibility and insights demanded by businesses today. Localized data silos such as file servers, ERP, and CRM, which act as storage spaces for contract documents do not offer any search and retrieve capabilities, which in turn prevent enterprises from locating contracts easily and interrogating them on-demand for information. 
  • Lack of real-time collaboration: Without real-time communication, external stakeholders are liable to receive erroneous or duplicate drafts.  Meanwhile internally, collaborators are forced to rely on long email chains to direct and facilitate necessary changes. 
  • Missed renewal and renegotiation opportunities: When contracts number in the thousands, it is simply impossible to manually keep track of every renewal and expiration date. Missed dates lead to business disruption and unfavorable renegotiations. 
  • Inability to track and monitor fulfillment: When faced with the sheer volume of contracts, tracking and ensuring that obligations are met becomes increasingly difficult. 

Applications and Key Benefits of Contract Automation

By taking advantage of CLM platforms that help automate the contracting process, contract management teams eliminate dependence on manual oversight. In addition to simplified administration, contract automation software also enables smoother transitions across the lifecycle. 

Here we look at some of the applications and benefits of contract automation: 

Faster, compliant contract authoring with automated contract review

The contract management process begins with diligent drafting. This involves multiple rounds of legal review with the counterparty, typically over email.

Manual processes do not have the necessary risk controls to ensure compliance from the get-go. This ultimately prolongs the negotiation cycle. It also chokes the legal department’s bandwidth and forces them to focus on non-strategic tasks.

CLM platforms offer many solutions to automate the contract review, redlining and drafting process. Legal teams can define approved clause and template libraries that can be stored in the CLM tool’s libraries. Using these, standard legal documents such as NDAs, MSAs, and even employee contracts can be drafted with a single click. Legal teams can streamline the review phase, limiting the need for individual oversight for every contract. This helps reduce the cycle times for contract generation. 

Improved collaboration and increased transparency

Communication between stakeholders (internal and external) is vital throughout the contract lifecycle. However, the inherently siloed way of working for teams makes this far from easy.

With contract management software, teams can improve collaboration thanks to real-time updates, fluid document crossover, and integrations with commonly used collaboration tools like MS Word and Outlook. Even if contracts number in the thousands, contract workflow automation helps keep teams in the loop. 

Much like when we collaborate via Google Docs or Microsoft Office, the latest modifications, clause deviations, and drafts are all documented in a complete audit trail, limiting the need for off-platform communications and improving transparency throughout. 

The CLM platform can function as a single source of truth, with all stakeholders accessing the same set of data.

Contract digitization and analytics

One of the greatest advantages of document automation tools is digital transformation—aka digitization. 

As manual contract management sometimes relies on physical references (i.e. paper copies), contracts or additional information can be easily misfiled and even lost. Extracting and analyzing contract data thus becomes tedious and inefficient, if not outright impossible.

Companies that digitize their contract portfolio can immediately gain a bird’s-eye view of their agreements across buy- and sell-side relationships

Utilizing in-depth analysis software, critical metadata can be quickly and easily harnessed for immediate usage. Furthermore, CLM software like SirionOne offer self-learning AI that evolves alongside the data. With every contract, the AI grows faster and more accurate.

Streamlined approval and reduced cycle time through configurable workflows

When legal teams must manage thousands of agreements, manual approvals will inevitably cause delays. Enterprise can address this issue by leveraging automated contract workflows. A visual workflow editor combined with pre-configured business rule sets can help expedite contract approval. 

Simple contracts can be auto-approved based on predefined thresholds. Complex contracts can be cascaded through a configurable approval workflow; after which, relevant stakeholders may course-correct as needed based on the available information, touch base through real-time collaboration, or approve the contracts. 

Along with automated workflows, contract management software also supports electronic signature, or e-signature, functionality. Signature templates may be used to pre-define signatories, further streamlining the approval process.

Secure and centralized access to contract documents and data 

To support both collaboration and digitization, contract management systems also offer a centralized repository. Companies who adopt CLM software with these functionalities can upload, store, and share contracts between collaborators via a cloud-based repository. 

An additional benefit of CLM software is increased security. By using a CLM platform, companies can achieve access management, by putting in place rules that ensure only authorized users have access to sensitive contract data (as opposed to wide-scale link-sharing most cloud services offer).

Improved fulfillment with deep obligation management

To achieve desired business outcomes, companies require in-depth insight and tracking of obligations and service levels. 

In the case of manual processes, near-constant surveillance is required. However, with CLM software, organizations can automate the process of validating obligation fulfillment tracking by comparing raw performance data feeds against contractual commitments. 

Obligation schedules may also be automated based on the needs of the contract (configured to follow one-time, recurring, or triggered schedules). 

By ensuring all contractual obligations are fulfilled, companies ensure intended business value is realized. This also helps reduce value leakage.

On-time contract renewal and accurate expiration tracking

The traditional approach to managing contract renewals relies on indirect communication (e.g., email). With organizations having thousands of contracts to manage, renewal dates end up getting missed. Even if they aren’t missed, rarely do businesses have enough time to prepare and approach renewal events as opportunities to analyze past performance and negotiate better terms.

To overcome this and ensure contract managers stay on top of expiration dates and important milestones, CLM platforms enable teams to set automated alerts, notifications, and reminders for regular compliance and check-ins. At the same time, all relevant stakeholders (including suppliers and vendors) are kept in the loop—improving collaboration overall. 

The end result?

Organizations ensure business continuity through timely contract renewals. 

Smarter Contract Management with SirionOne

The contracting process is sometimes lengthy and tedious. However, by employing contract automation tools, internal teams can accelerate their contract management processes and achieve better business outcomes. 

AI-driven software like SirionOne offer contract automation solutions that scale and enable organizations to streamline all phases of the contracting lifecycle – across contract creation, storage, and ongoing management. 

Utilizing cutting-edge, next-gen technology, companies can heavily automate drafting cycles, extract and digitize crucial metadata, and close deals faster with fluid, timely collaboration. 

Request a demo today with Sirion and begin your journey towards seamless contracting

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