Dealing with contracts can be an intimidating experience for even the most seasoned legal teams.
Startups and small businesses can feel particularly ill-equipped and overwhelmed at the growth stage, especially if they don’t have an in-house legal team yet. As the number of business relationships increases, so can the number of contracts of varying types, complexities, and obligations. The lack of critical systems, processes, and resources starts taking its toll. Eventually, contract management mistakes begin to add up, creating risk, threatening to derail the efficiency of the business as a whole, and disrupting key relationships.
The good news is many of these mistakes can be preempted and done away with altogether. In addition to streamlining your workflows and improving productivity, incorporating a solid contract development and management system can give you savings of up to 9% on your company’s annual revenue (in addition to actual ROI). It’s also key to getting your business ready for key moments in your growth trajectory, like seeking funding or preparing for IPO.
Here are four of the most common contract management mistakes that could be derailing your startup growth, plus an overview of how contract lifecycle management (CLM) technology could potentially save the day.
First, test your current contract management process:
1. Manual Methods of Contract Management
Traditional contract management for startups often relies on manual processes like paperwork, spreadsheets, and emails. These processes can be time-consuming, labor-intensive, and fraught with the potential for human error.
No matter how careful your legal team and partnered departments are when it’s time to review a contract for mistakes, there is always potential for the odd error or two to fall through the cracks.
When tracking and following up on contracts takes place over phone calls and emails with spreadsheet inputs and edits, your team wastes valuable hours on the less-productive tasks associated with office administration.
Meanwhile, frustrated clients fume over how much time everything’s taking because speed to market can be critical in business. As early as 2018, 70% of respondents to a study expressed a preference for “lawbots” over humans simply because of a perceived increase in speed and simplicity. The same study showed that one out of three consumers wanted lawyers to provide digital services.
Another concern that arises from a manual contract management process is the lack of version control. Multiple team members could be working through checking, editing, and communicating over the same document. As a result, it’s common to have numerous versions of the same document stored in different locations or transmitted via email.
You can end up with information that isn’t consistent across the board, and locating the latest version of any contractual document can be an uphill task. Important files have been known to get misplaced or deleted in the process.
2. Too Little Visibility
Visibility and transparency are difficult to achieve when your team uses different tools that aren’t talking to each other or relies wholly on manual processes like the ones mentioned earlier. You can miss critical deadlines and obligations that can cost your business both opportunity and revenue.
A classic example of this is tracking contract expiration dates. On-time negotiations and renewals solidify an existing relationship and improve bargaining power for better deals on both sides. It’s also easy to miss out on auto-renewals when you don’t have systems in place.
Remote access to contracts is another challenge that startups struggle with. Paper documents can be hard to access if they’re not stored in some form of an online, secure repository that everyone can access. You also want to be able to access the information regardless of the hardware you’re using, whether that’s a phone, tablet, or desktop.
When you cannot find critical information promptly, that can impact how your clients perceive your business. It also puts a dent in productivity and efficiency. Let’s not forget the financial implications of missed contractual terminations.
When multiple authors or teams collaborate on a single document, it can become challenging to understand when and where amendments have been made and link back to related conversations or agreements. Identifying the status of a contract at any given point becomes complicated. Transparency then becomes even more challenging as the size of the team starts to expand.
3. Contract Authoring Redux
Startups repeatedly build contracts from the ground up because they usually don’t deploy technological solutions that can make the authoring process easier. Ready-made and customizable templates with preapproved terms, clauses, and conditions can make it faster and more efficient.
The use of customizable templates can also offset the issue of inconsistent legal language usage and application. Partnered departments choose and select from preapproved contractual terms and language, reducing the potential for confusion and misunderstanding.
Aside from contract generation, adopting features such as e-signatures, the ability to select signatories, and route contracts to the right people at the right time are no-brainers when we factor in the digital environment most businesses are operating in right now and the need for constant visibility and transparency.
4. Lack of Granular Data and Insights
Reporting and analytics can become a significant stumbling block when you rely on document management systems, spreadsheets, and shared drives. The bottom line is that it’s challenging to manage workloads and measure performance without either. Business leaders also want more metrics, data, and granular insights into the impact of the entire lifecycle on the bottom line.
But developing a reporting capability for manual contract management methods inclusive of multiple tools that aren’t connected is a task in itself. Most startups understand the need for a tech solution like a centralized repository to facilitate timely and accurate reporting and performance management.
Contract Lifecycle Management Software: A Win-Win Solution
Deploying contract lifecycle management software can be a simple yet highly effective way to address these common startup mistakes, leaving you to grow unhindered.
Because CLM software helps you connect teams, negotiation and collaboration will become easier. Your legal team and other partnered departments will stay on the same page when it comes to critical aspects such as redlining, editing, change acceptance/rejection, and version control.
Set up a centralized location for contract creation requests, regardless of whether they’re on company paper on third-party paper. Create a seamless workflow by uploading your preferred template (which can be customized afterward), tagging the relevant fields, and adding the required approvers and signers to your approval route.
When there’s a single location for contracting and managing requests, users always have access to the most up-to-date template to generate, edit, route, and track contracts. Guardrails on clauses and approval routing ensure 100% automatic contract compliance. Plus, your documents can be readily accessed by core team members on the go, and you can rest easy knowing that they can’t be stolen, lost, or burned in a fire.
More advanced CLMs integrate Word/DOCX within their capabilities, making building relationships with companies reliant on manual processes easier. Smart CLM solutions can make the process of content creation quick and hassle-free. AI-based legal tech can reduce your contract review times to less than an hour, saving you 20-90% of your time without sacrificing accuracy.
Advanced legal tech gives you the ability to add conditional clauses and conditional approvers. CLM software also helps mitigate and eliminate many forms of risk. Make use of inbuilt features to ensure contracts always comply with organization policies and legal requirements without manual review.
CLM can also easily get actionable insights from collated data through customizable dashboards. You’ll always be able to stay on top of high volumes of contracting activity without missing a beat. Also, get visual intelligence into the basics such as:
- What types of contracts are open, and at which stage are they?
- How is contract work distributed among your team?
- Which locations or business units have a higher contract volume?
From a business perspective, making use of legal tech can help you enhance the operational and profitability aspects of your business in more ways than one:
Wrapping Things Up
As a growing startup, you want to focus more on the activities that move the needle on your business instead of general administration. Basic contract management mistakes that are easily preventable and manageable should be the least of your worries. CLM software can help you improve productivity, speed up the contract management lifecycle, strengthen supplier relationships, and increase profitability.
In 2019, 27% of senior executives in firms believed that using digital transformation was not a choice but a matter of survival. If you don’t use some form of intelligent technology to manage your contract processes, you will quickly find that in today’s digital age, where speed is of the essence, and timely information is critical, you could soon lose out.
- 1. Manual Methods of Contract Management
- 2. Too Little Visibility
- 3. Contract Authoring Redux
- 4. Lack of Granular Data and Insights
- Contract Lifecycle Management Software: A Win-Win Solution
- Wrapping Things Up
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.