Top 5 Contract Management Challenges
For many organizations, contracts are a constant source of frustration, anxiety, and delay. It should not be so. Yes, contracts are complex, and there are lots of contract management challenges that businesses face. Luckily, it is possible to master your contracting process and transform it from a weakness to a competitive advantage.
Contracts are a recurring thing in every business. You simply cannot wish away any inefficiency you are currently experiencing, especially if your organization deals with high contract volume. You need to tackle it head-on, as it is in your organization’s best interest to improve contracting efficiency.
What can go wrong in contract management
Contract management often goes wrong when none of the workflows associated with the contracts are centralized, when documents are unfindable, and it’s impossible to deduce actionable metrics from the data provided. Version control can prove especially challenging in poor contract management, which increases your contract risks significantly. The tools used in contract management before CLM software came along—emails, Word doc, spreadsheets, and cloud storage—do not support the level of collaboration and visibility that contract management requires.
Many of your organization’s contract management challenges can be traced to not having a good contract lifecycle management (CLM) solution. Having CLM software that is all-encompassing and you can use in all contract lifecycle stages is crucial to overcoming contract management challenges and improving your contracting efficiency.
Top 5 challenges in contract management
The first step in improving contracting efficiency is understanding the contract management challenges that you currently face. Here are the top 5 challenges affecting effective contract management (and ways to solve them).
1. Missing contracts
One challenge businesses face in contracting is missing contracts, and it’s more common than you think. A Journal of Contract Management report revealed that 71% of companies couldn’t find at least 10% of their contracts.
Contracts are critical business documents stipulating the rights and obligations of contracting parties. Parties rely on the contract document to understand and fulfill their contractual obligations and resolve disputes when they arise. In other words, contracts are not documents you want to lose.
It’s common for businesses to sign contracts and dump them somewhere until there is a dispute. You can’t do this if you can’t find your contracts. However, contract execution is only one of the contracts lifecycle stages. Contracts should be managed and monitored to ensure that contracts performance complies with the terms agreed upon by the parties.
Storing contracts in emails or the cloud is not enough. Not only can you lose contracts, locating the specific contract you need at different times can be an arduous task.
Embracing a contract lifecycle management software can solve this challenge. With a CLM, you’ll get a central, searchable repository to store all your contracts, retrieve them easily, and never risk losing your contracts again. A CLM’s web-based, cloud-hosted database will also enable all members of your team to access your contracts from anywhere in the world.
2. Redlining standard agreements
Contract redlining is a major part of contract negotiation. However, if your organization’s standard agreements are frequently redlined, it defeats the core purpose of using standard agreements, and it’s a sign something is off.
Standard agreements, also known as standard form contracts, are contracts with terms not usually subject to negotiation. The contracting party either accepts or rejects it. Standard agreements are usually used in business-to-customer transactions, and it enables business transactions to happen at scale without hitches.
Common standard agreements include:
- Non-disclosure agreements (NDAs)
- Non-compete agreements
- Terms of service
- Rental agreements
- Employment contracts
Standard agreements vary little – if at all – from one transaction to another. You can easily create a template and make minor edits depending on the transaction.
If you use a CLM solution in contracting, you can minimize redlining in standard agreements by using Workflow Designer to create dynamic templates that execute based on the transaction, who the customer is, and where the customer is located.
3. Poor understanding of the contracting process
Many organizations don’t understand their contracting process and so do not approach their contracts with confidence. Contracts are too vital not to understand your contracting process, identify your weaknesses, and actively become more efficient.
Understanding your contracting process means you know how much time it typically takes to move from one lifecycle stage to another, the lifecycle stage that causes the most delay, and the reason for it. It also includes knowing the contracts that drag on and take more time to process than others in your organization.
Without this knowledge, any effort you make to improve your contracting efficiency will be based on guesswork and won’t be data-backed. This is dangerous because, without the right data, it’s easy to make wrong assumptions. And actions based on wrong assumptions will rarely produce the desired result.
So, how do you tackle this challenge? The answer is by looking at the Activity Feed. Ironclad’s Activity Feed will help you see all the actions in your contract workflow in real-time. For instance, you can see when a contract request was put in, how long it took to draft the contract, and every other interaction.
Activity Feed also saves all the actions so you can still view them even after the contract has been executed. This way, you can see your weak links and where your contracts stall.
4. Lack of visibility into contracts
Another challenge organizations face in contract management is that contracts are not visible. This is especially true for non-legal departments. One of the delicate issues Legal departments grapple with is ensuring other departments have access to the contract data they need to perform their duties without exposing sensitive information.
The need for all departments in your organization to have visibility into contracts cannot be over-emphasized. Without visibility, contracts cannot be managed, and there will be no way to ensure compliance with contractual terms and regulations.
Contracts compliance is an enterprise-wide issue that affects various departments in an organization. Procurement departments want to keep contract spending within budget, track performance metrics, and ensure compliance with service-level agreements (SLAs). Sales departments want to ensure that the sales agreements they send out contain the most current contract clauses and approved language. Legal teams want to ensure that all contracts comply with the company’s standard and regulatory requirements.
These departments won’t be able to do any of the above if contracts are not visible. Also, without contract visibility, your organization may fail to comply with the terms of your contracts. That can expose you to being sued for breach of contract. Not only that, you cannot ensure that contracting parties are complying with the terms agreed upon if contracts are not visible.
Having visibility into your contracts will also help you meet key contract deadlines—whether it’s time for contract performance, renewal, or termination.
Making contracts visible starts with storing contracts in a central, searchable repository. Because if contracts can’t be found and easily retrieved, they can’t be visible. A CLM software will help with this, and it will also help you protect your sensitive contract information and comply with data privacy regulations for contract visibility. With the advanced permission feature, you can specify who will have access to each contract.
5. Poor metrics tracking
Improving the contracting process has gone beyond making wild guesses and conjectures to gathering reliable data, analyzing, and taking data-backed actions. In the past, tracking contracts involved spreadsheets and countless hours spent gathering the information you needed. This was a slow, inefficient, and error-prone process. Unfortunately, some organizations are still trying to track their contracts metrics this way.
Tracking contract data in all contracts lifecycle stages is crucial to understanding your organization’s contracting process, discovering the cause of any inefficiency, and taking steps to improve it. Many Legal teams want to become more data-driven, and it starts with knowing the right metrics to track at each contract lifecycle stage. The right metrics depend on the area you want to become more efficient in and your organization’s goals.
For instance, a business that wants to make their contract creation faster should track contract creation metrics like how long it takes Legal to accept contract requests, contract requests by department, and contracts created the most.
We said earlier that manually tracking contract metrics with spreadsheets is grossly inefficient and error-prone. So, what is the solution?
Ironclad’s CLM Process Metrics Reporting can help you automatically track your contract data and generate visual reports with ease.
Ironclad’s CLM solves all contract management challenges
Contracts are complex business documents and can be difficult to manage. Ironclad’s CLM was designed to tackle all the challenges that businesses face in contract management.
Whether your organization’s challenge is missing contracts, redlining standard agreements, poor understanding of the contracting process, lack of visibility into contracts, poor metrics tracking, or anything else, Ironclad’s CLM has a solution.
Ironclad’s CLM was built to be an all-in-one solution for your organization’s most complex contracts, down to your simple, routine contracts. With Ironclad’s CLM, you can streamline contracts creation, collaborate effectively with relevant stakeholders, and manage your contracts seamlessly.
Learn more on how Ironclad’s CLM software can help your organization become exceptional at managing contracts.
Table of contents
- What can go wrong in contract management
- Top 5 challenges in contract management
- 1. Missing contracts
- 2. Redlining standard agreements
- 3. Poor understanding of the contracting process
- 4. Lack of visibility into contracts
- 5. Poor metrics tracking
- Ironclad’s CLM solves all contract management challenges