Contracts form an essential part of the working of any organization. It is the contracts only that bring onboard employees, vendors, etc., who have an equally important role in the efficient working of the firm. As a business expands, firms are faced with the challenge of managing a plethora of contracts and hire providers of contract management services to take care of the same.
However, using the outdated approach of managing contracts leads to delays and inefficiencies. Due to technological advancements, there is no need to finalize the contracts through multiple meetings, manual approvals, paper print-outs for physician signing, and more.
Now, the contract management system has been refined a lot. There are highly proficient contract management solutions that are available with advanced features such as Office 365 integration for reviewing and editing documents, ready templates for creating legal contracts, flexible workflows, government-approved e-sign technology for electronic signing, and more.
- According to PWC, on average, firms maintain about 20,000-40,000 contracts.
- The Harvard Business Review explains that improper contract management leads to firms losing up to 40% of deals’ value due to the associated challenges.
- As per 2019 Gartner reports, it is expected that by 2024, manual contract review methods will come down by 50% with the help of contract analytics solutions that are based on artificial intelligence.
- The International Association for Contract and Commercial Management’s (IACCM) latest research revealed that technology is changing the way people deal with contracts, and this is leading to an enhanced level of business judgment, commercial innovation, and knowledge application.
- As per Global Enterprise Contract Management Market (Trends Analysis Product Usability Profiles/Forecasts to 2023 report), contract lifecycle management (CLM) is expected to increase thrice in value in the next 7 years, with artificial intelligence being the key development factor.
Traditional Contracts vs. Modern Contracts
- Here, the terms and conditions, including negotiations, are discussed physically.
- These are in the written form.
- They are not self-executing.
- They require a middleman to make sure that the contracts get executed authentically.
- Here, the terms and conditions, including negotiations, are discussed digitally.
- They are in an electronic form.
- They are self-executing.
- They do not involve any middleman, and only after terms and conditions are finalized, they get executed.
Technology Trends Modernizing Contracts
1. Digital Transformation
Digitalization is playing a massive role in the transformation of business processes across the globe. A majority of firms implemented a CLM solution for automating their present contracting processes. But this new CLM technique was specific to some of their departments- sales, legal, procurement, etc.
Although it was doing fine, but issues were witnessed during various contract lifecycle management tools’ deployment and process workflows. However, these issues were resolved quickly with the help of ECM software technology, using which the entire contracts were managed on a single platform.
2. Enterprise Level CLM Software
Enterprise-level CLM software helps in putting organizations in a position where they can put their entire contracts into one system for developing them holistically- corporate, sales, HR, procurement, legal, etc.
Using enterprise contract management solution, automated systems replace the less efficient systems based on the manual contract management approach and are replaced with automated ones to refine the overall process. This leads to a holistic view for multiple teams across the firm’s entire contracts for enhanced analytics and workflows, including reduced risk.
3. Artificial Intelligence (AI) and Machine Learning in CLM
Just as we discussed above that AI is becoming a key player when it comes to transforming the way contracts are being managed. AI-enabled ECM software enables more of a live system that ensures that the creation, execution, and management of contracts are done in a proper manner.
With the use of artificial intelligence features and machine learning algorithms, alerts for risky clauses can be established easily. Also, bots can be used to build contracts that pave the way for an easy and automatic onboarding of new entrants.
4. Blockchain and Smart Contracts
Smart contracts are those contracts that are formed using computer codes in order to automatically monitor, execute, and enforce a legal agreement. On the blockchain technology, functional outcomes/contractual clauses are mapped. The reason such automatic contracts are being preferred a lot these days is due to the sole reason that they lead to a reduction in the transaction prices and dependencies on the second party’s performance.
Also, an upper level of accuracy and transparency is achieved using smart contracts due to an automated system. Most of the business operations are delayed since it involves various approvals back-and-forth but using a blockchain ledger; everything gets streamlined effortlessly.
Benefits of Smart Contracts
- Autonomy: You need not depend on a broker or any other intermediary for the contract’s arrangement and execution.
- Speed: With the help of smart contracts’ task automation feature, you get to save a lot of time/effort as compared to manual document processing.
- Backup: 100% safety is ensured with smart contracts since information is secured with a backup.
- Security: Your documents can never be lost due to a hack since cryptography is there to protect the same, and it is extremely tough breaking this code.
- Accuracy: Accuracy is guaranteed with smart contracts since there is no involvement of a manual filling.
- Trust: Due to the fact that a shared ledger exists for encrypting documents, trust gets maintained throughout.
- Cost-Saving: Due to the absence of any middleman in smart contracts, you are able to save a lot.
Multiple technologies are making the contract management system more modernized, secure, and fast. And this simply is the beginning since technology is evolving with the passing of time, and firms will be able to leverage the same in the future for making their contract process even more streamlined.
It is essential to invest in technology and drop the manual approach of managing contracts since neither it is a safe practice, nor is it beneficial in any way as compared to managing contracts using technology!