Contracts are necessary – they can also be tedious and error-prone. That’s why using contract automation as part of your contract management processes can be so beneficial.
It saves time, reduces errors, and provides a better experience for everyone involved.
In this guide, you’ll learn more about contract automation, the steps involved, multiple use cases, and what to look for in contract automation software.
What is contract automation?
Contract automation refers to the process of using technology, such as software or artificial intelligence, to automate the creation, review, negotiation, execution, and management of contracts.
Contract automation software can help streamline the entire contract lifecycle, from the initial drafting of the agreement to the signing and storage of the final document. These tools can be used to generate and customize templates, ensure compliance with legal and regulatory requirements, track changes and revisions, and facilitate communication between parties.
By automating the contract process, you can save time and reduce costs, improve accuracy and consistency, and enhance visibility and control over their contracts. Additionally, it can help reduce the risk of errors or omissions, improve contract performance, and mitigate disputes.
Steps in contract automation AKA how contract automation works
Unfortunately, you can’t just jump into contract automation. There are multiple steps in the process and the better you’re able to complete each step, the better the final outcome.
Step 1: Define your Contract Process
Define your contract process by identifying the key steps involved in creating, reviewing, negotiating, executing, and managing contracts. It also involves identifying the stakeholders involved in each step of the process, as well as any applicable legal or regulatory requirements.
Step 2: Identify your Pain Points
Identifying pain points requires taking note of areas in your contract process that are most time-consuming, error-prone, or inefficient. It also involves identifying any bottlenecks or obstacles that may be preventing you from achieving your desired outcomes.
Step 3: Choose the Right Contract Automation Tool
Once you have identified your pain points, the next step is to choose the right contract automation tool. There are many different contract automation tools available, each with its own strengths and weaknesses.
Some key features to look for in contract automation software include:
- Contract creation and customization
- Electronic signature capabilities
- Document storage and retrieval
- Collaboration and negotiation tools
- Compliance and audit tracking
- Reporting and analytics
We’ll go into more detail about what to look for in contract automation software later in this guide.
Step 4: Customize your Templates
Templates are a key component of contract automation, as they allow you to create standardized contracts that can be easily customized for each use case. When creating your templates, it is important to include all of the necessary clauses, as well as any legal or regulatory requirements.
Step 5: Implement Approval Workflows
Another important step in contract automation is to implement approval workflows. Approval workflows are a series of steps that must be completed before a contract can be finalized. This may involve multiple rounds of negotiation, as well as approval from various stakeholders. With contract automation, you can automate these approval workflows, ensuring that contracts are approved in a timely and efficient manner.
With contract automation software, you can automate the creation of new contracts by using your customized templates and pre-populating them with relevant information. You can also use your contract automation software to facilitate collaboration and negotiation between parties, by allowing them to comment on and make changes to the contract in real time.
Together, these make it much easier to get approval for your contracts in a timely manner instead of having to constantly follow up with specific people.
Step 6: Automate Contract Execution
Automating the process of signing, storing, and carrying out the tasks stipulated in the contract. There are many different ways to automate contract execution, including electronic signatures and digital storage solutions. A platform like DoxFlowy seamlessly handles both of these tasks.
Step 7: Monitor Contract Performance
Once your contracts have been executed, the final step in contract automation is to monitor and manage their performance. This may involve tracking key performance indicators (KPIs), such as contract compliance, contract cycle time, or contract value.
Your contract automation software can provide you with real-time reporting and analytics on these KPIs, as well as automated notifications and alerts if any issues or risks are identified.
By effectively monitoring and managing your contracts, you can ensure that they’re meeting your organization’s goals and objectives. You also ensure you get the full value of your contract automation investment.
Benefits of contract automation
Contract automation is the process of using technology to automate the creation, review, negotiation, execution, and management of contracts. The benefits of contract automation are numerous and can have a significant impact on the efficiency and effectiveness of an organization. Here are the top five benefits of contract automation:
1. Improved Efficiency and Productivity
Utilize it to automate the contract creation, negotiation, and approval processes, reducing the time and effort required to manage contracts manually. This allows you to complete contract-related tasks faster and more accurately, freeing up resources to focus on other important business activities. You may use that time to close more deals, perform high-level operational tasks, and much more.
2. Reduced Risk of Errors and Omissions
With an automated contract creation process, you can ensure that all necessary clauses and provisions are included in the contract, reducing the risk of disputes or legal issues down the line. Additionally, contract automation software can help ensure compliance with legal and regulatory requirements, further reducing the risk of errors or omissions.
3. Improved Contract Visibility and Control
Since you’re able to take advantage of automated tracking and management tools, you can easily monitor contract performance, track contract expiration dates and renewals, and ensure that all parties are complying with the terms of the contract. This can help organizations identify potential issues or risks early on, and take proactive steps to address them.
4. Enhanced Collaboration and Communication
Automated negotiation and approval tools make it easier for parties to work together to review and make changes to the contract in real time. This reduces or even eliminates the need for back-and-forth emails or phone calls. Additionally, automated notifications and alerts can help keep parties informed of important deadlines or changes to the contract.
5. Cost Savings
Optimized and streamlined contract processes reduce the need for manual intervention, which allows you to save time and resources. Additionally, by reducing the risk of errors and disputes, organizations can avoid costly legal fees and penalties. Finally, by optimizing contract performance and reducing the risk of contract failures, you can increase revenue and profitability.
Drawbacks of contract automation
While there are many benefits to contract automation, there are also some potential drawbacks that you should consider. Here are three major drawbacks of contract automation:
Implementing a contract automation system can require a significant upfront investment in software, hardware, and employee training. You may also need to invest in legal expertise to ensure contracts are properly structured and compliant with legal and regulatory requirements. These costs can be a barrier to entry for smaller organizations or those with limited budgets.
Lack of Flexibility
Contract automation systems can be highly effective at managing routine contracts with standard terms and conditions. However, they may be less effective at handling complex or non-standard contracts that require more customization. This can limit your flexibility when negotiating and managing contracts, potentially leading to missed opportunities or lost business.
Reduced Personal Interaction
Contract automation systems can automate many of the routine tasks associated with contract management, reducing the need for personal interaction between parties. While this can improve efficiency, it can also reduce the level of personal interaction and communication that is often critical to building trust and strong business relationships. This can be especially important in industries where relationships and personal connections are the keys to success.
Contract automation use cases
Contract automation has a wide range of use cases and we can’t hope to cover all of them here. With that being said, there are a few that stand out and can have a major impact right away.
Generally speaking, sales teams produce many similar contracts that need to be customized to the situation. This is where contract automation shines. It allows sales teams to quickly create, review, approve, and execute contracts. Additionally, contract automation can help you track contract performance, monitor contract expiration dates, and identify opportunities for upselling or cross-selling.
For example, a sales team can use contract automation software to generate custom sales contracts for each client quickly and efficiently, reducing the time it takes to close deals. Additionally, automated contract tracking can help sales teams identify opportunities to renew or renegotiate contracts, leading to increased revenue and improved customer satisfaction.
Managing vendor contracts can be a complex and time-consuming process, but contract automation can help simplify and streamline it. By automating the contract creation and negotiation process, you can reduce the time and effort required to manage vendor contracts manually. Additionally, automated contract tracking can help organizations monitor vendor performance, track contract expiration dates, and ensure compliance with contractual obligations.
For example, a procurement team can use contract automation software to create standardized vendor contracts with pre-approved terms and conditions, reducing the need for manual intervention. Additionally, automated alerts and notifications can help ensure that vendors are meeting their contractual obligations, and automated performance tracking can help identify areas for improvement or renegotiation.
Employment contracts are a critical part of the hiring process, but managing them manually can be challenging. Contract automation can help organizations streamline the process, ensure compliance with legal and regulatory requirements, and improve visibility and control over employment contracts.
For example, a human resources team can use contract automation software to create standardized employment contracts with pre-approved language and clauses. Additionally, automated tracking and management tools can help HR teams monitor contract performance, track contract expiration dates, and ensure compliance with legal and regulatory requirements.
Managing lease agreements for real estate or equipment can be complex, but contract automation can help simplify the process. After setting up dynamic contract templates, you can reduce the time and effort required to manage lease agreements manually. Additionally, automated tracking and management tools can help you monitor lease performance, understand when leases are about to expire, and ensure you stay compliant.
For example, a property management team can use contract automation software to create standardized lease agreements with pre-approved terms and conditions. This reduces costs associated with professional legal help and also gets rid of most, if not all, errors within a contract.
Non-disclosure agreements (NDAs) are a critical part of protecting intellectual property and confidential information. Managing NDAs manually can be time-consuming and error-prone, but contract automation can help streamline the process. Since NDAs are usually similar to one another, you can save a lot of time by adding conditional logic to a dynamic template.
Top of Form
Contract automation software and what to look for
A strong document editor
Contract creation and customization are critical features of contract automation software. This is made possible with a strong document editor. The software should enable users to create and customize contracts quickly and easily, using templates and pre-approved language where possible. The ability to add custom clauses, terms, and conditions is also important to ensure that contracts meet specific business needs.
Collaboration and redlining tools
Contract automation software should support workflow management and collaboration to ensure that contracts are reviewed and approved by the appropriate stakeholders. The software should allow you to define workflows and assign tasks to specific users, with automated alerts and notifications to keep everyone informed of progress. Collaboration tools such as commenting and version control are also important to ensure that everyone has access to the most up-to-date contract information.
Contract templates are an essential component of contract automation as they provide a standardized framework for creating contracts. By using templates, you can ensure that contracts adhere to established legal and regulatory requirements, and include all necessary clauses, terms, and conditions.
Contract templates can also be customized to include specific business requirements, such as pricing, delivery terms, and service level agreements. Using templates helps to streamline the contract creation process, reduce errors, and ensure consistency in contract language and terms. This saves time, reduces costs, and helps improve overall contract management and compliance.
These contract templates should also support conditional logic. Conditional logic is when aspects of the document change based on the inputs provided. For example, if someone is 40 years old or above, a certain clause may be added to the contract based on prevailing regulations.
Integration and automation features are important to ensure that contract automation software can be integrated with other business systems and workflows. The software should enable users to integrate with other systems such as customer relationship management (CRM) or enterprise resource planning (ERP) systems to ensure seamless data flow. Additionally, the software should support automation features such as electronic signatures, automated workflows, and contract renewal reminders to improve efficiency and reduce errors.
Audit trails, reporting, and analytics
Reporting and analytics features are important to enable users to track contract performance and identify areas for improvement. The software should provide users with a range of standard reports and dashboards to monitor key metrics such as contract value, renewal rates, and compliance status. Additionally, the software should enable users to create custom reports and analyze data to gain insights into contract performance and identify opportunities for process improvement.
Central contract repository
A contract repository and folder organization are essential components of contract automation as they provide a centralized location for storing and managing contracts throughout their lifecycle.
By maintaining a contract repository, you can quickly access important contract information, such as contract value, expiration dates, and obligations. This ensures that contracts are managed effectively and efficiently, reducing the risk of missed deadlines, non-compliance, and financial penalties.
The use of folders within the repository can further enhance the organization of contracts, allowing users to easily locate and retrieve contracts based on specific criteria, such as contract type, customer, or department. This helps to improve the efficiency of contract management and reduce the risk of lost or misplaced contracts.
Contract automation is a powerful way to unlock efficiency in your organization. It can reduce errors, save money, and provide improved visibility across every step of the contract lifecycle.
It brings a lot of benefits to the table but it’s important to understand that also takes upfront effort to get the most out of it. At this point, you should have a solid understanding of what it can and cannot do as well as a few ideas about how you can use it.
If you’re looking for a robust contract automation solution, be sure to check out DoxFlowy.