Managing a growing company also means dealing with more contracts and with the contract lifecycle.
Because contracts govern 80% of business deals, and they specify the rights and responsibilities of both parties together with the legal consequences of breaching them.
It doesn’t matter whether it’s sales contracts, vendor contracts, or employee agreements. It’s crucial to have a system to manage the contract lifecycle.
Otherwise, your company could lose 9% of its annual revenue or be among 77% of companies that experience regular project delays.
The question is, what is good contract management?
Today, let’s take a close look at how companies generally handle their contracts. Especially the costs and challenges it incurs if done poorly.
Then, we will introduce you to a smart way to manage them using contract lifecycle management (CLM) to streamline and automate contract-related workflows.
What is a contract lifecycle?
The contract lifecycle is the stages a contract goes through. From its creation to eventual expiration or renewal. The lifecycle can be divided into three main phases: Pre-Execution, Execution, and Post-Execution.
The phases include the following actions:
- Request an intake
- Drafting or authoring
- Collaboration and negotiation
- Reviews and approvals
- Execution and signatures
- Commitments and obligations, amendments, addendums, renewals, and terminations
- Reporting and auditing
- Archival and data retention
Did you know you can streamline the activities in a contract lifecycle? See this article to learn how to automate the different phases of contracts.
As an example of a contract lifecycle in an organization, here’s a look at how these non-legal departments typically handle contracts:
Contract lifecycle in HR.
Let’s use the most typical HR document — an employment contract. The contract lifecycle in HR typically begins with the HR department creating contracts for new hires.
Usually, HR gets legal help on contract reviews before finalizing the paper. However, reviewing an employment contract could cost anywhere from $50-$300.
Then, they’re sent to employees to sign before being filed away. The more severe problem happens when they become lost HR documents. The consequence is usually that:
- It would cost $120 just to locate a lost document, and reproducing it from scratch costs $220.
- 36% of the workday is spent finding the document and gathering information.
- However, only 56% of the time do they find the documents they need after searching.
Contract lifecycle in Sales
The sales team is about sales velocity, right? So yes, contracts in their custody are time-sensitive. Yet, this happens — NDAs in sales contracts sometimes take 6-8 weeks to sign.
The result? It causes a two-month delay in sales.
A contract lifecycle in sales typically begins when sales create a contract sent to the customer for signature. Once signed, the contract becomes enforceable, and the product or service is delivered.
Why is contract management important?
The point is contracts are the lifeblood of any business. Having a lot may indicate that your company is growing. Yet, they’re also legally binding — failing to uphold your end can get you in big trouble.
A good contract lifecycle management can mitigate that and more.
- It ensures compliance with laws and regulations. Contract management involves providing all the required documentation so that auditing to comply with applicable federal legislation is hassle-free.
- It minimizes human error. With so many contracts to keep track of, it’s easy for small mistakes to get missed. Human errors can, unfortunately, have big consequences like fines and legal troubles.
- It optimizes the workflows and boosts performance when producing such documents. You can easily spot who or what the bottlenecks are and improve the process upfront.
- It ensures that contracts have brand consistency across the company. Contract owners can easily reference new agreements to the previously used contracts of the same format, terms, and conditions.
- It can help you to save money. A good contract management system will allow you to spend less time with contracts and focus more on high-value tasks.
- It lets you improve communication with your team. Having all the details of your contracts in one place allows you to easily share information with relevant team members and get their feedback.
- It gives visibility to all parties involved in a contract. A contract management system can give you an overview of all aspects of the agreement, including who is responsible for what tasks and when they need to be completed.
Cost of managing contracts
Strictly speaking, managing contracts can be very expensive. Most big companies file between 20,000 and 40,000 contracts.
Here are the general numbers of handling contracts in their lifecycle:
- The cost of drafting contracts by lawyers ranges from $200 to $5,000, depending on the document’s complexity.
- For companies with in-house legal departments, approximately $2.7 million (annually) of lawyers’ salaries go towards non-legal duties.
- Even after all the costs, businesses don’t follow 70% of completed and active contracts.
- 84% of small businesses fail to get legal advice on contract management, putting them at risk for contract disputes.
Yes, managing contracts can be tedious and costly. But they have a lot of advantages over unmanaged contracts. Plus, the numbers represent manual contract management. Automating the process reduces contract management operating costs by 10-30%.
How can you automate the process?
Contract lifecycle management (CLM) tools are the solution for efficiently managing business contract processes through automation. CLMs like Avokaado can streamline the end-to-end contract management workflows.
Jump to this case study to see Avokaado in action: How an HR department automated employment workflows for scaling.
So, let’s look at how our tool works.
Avokaado as CLM
Avokaado is designed to simplify contract lifecycle management, so here are a few automation features you’ll love.
Centralized contract repository
Avokaado’s centralized contract repository lets you store all the contracts in one secure location, making it easy to locate and manage them. Also, this database allows authorized teams to access up-to-date contracts at any time, whether they’re active or old contract archives.
Extra tip: You can do a metadata or full-text search when browsing the Avokaado database.
Automated contract templates
Avokaado’s library of pre-lawyered templates can save businesses time and money by providing them with contract drafts that lawyers have already approved. You just have to tweak them according to your needs, and you have your standardized and compliant contract in a few clicks — no need to start from scratch.
Seamless internal and external collaboration.
The platform also allows for seamless internal and external information sharing. First, it lets you work with your team while managing their access according to their roles (editor, viewer, approver, or signer). Regarding external collaboration, you can have the negotiations through a shareable public link.
Here’s a bonus treat — we made an enhanced collaboration feature! Find more information in this post- Introducing aDoc 1.1 – A New way to collaborate.
A contract lifecycle includes many key dates. Avokaado can help you set up automated alerts and scheduled reminders to notify users of pending tasks (like contract reviewing and signing). It also notifies about upcoming deadlines, expiration, or renewal dates. This ensures everyone is on top of their contracts and it reduces the risk of missing a crucial milestone.
Digital signing solution
Bye-bye to paper documents signed with wet signatures. The digital signing feature of Avokaado enables all parties to sign contracts electronically, without jumping to another platform. Its integration with the two eIDAS-compliant providers — SignNow and Dokobit — ensures the process is fast, secure, and legally binding. So new or renegotiated contracts can be authenticated in no time.
Smart contract management dashboards
If you need a close monitor of a contract lifecycle, a CLM’s dashboard like in Avokaado, is your smartest best friend. The dashboards provide an overview of your contract database and use them to track key performance indicators (KPIs). Moreover, you can also use it to monitor contract trends, such as the number of new agreements generated every month or the average length of time it takes to finish a contract.
Good to know: Avokaado CLM software offers three views ― workspace, document, and template — corresponding to overseeing company or specific contract progress.
Streamline contract lifecycle management
Managing contracts can be challenging, especially if you have many. However, the contract lifecycle management process is essential to keeping your business running smoothly — and avoiding legal penalties and disputes.
CLM software optimizes the contract management process, making it easier and error-free. With modern CLM like Avokaado, you’ll be able to follow contracts and automate many tedious contract-related tasks easily.
Not sure if Avokaado CLM is right for you? Then check it out for free and see how easy contract lifecycle management can be.