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A regular and often widespread misconception of many legal departments is that the established and present process of contract preparation does not pose any significant problems for the organization. A confrontation with contract software for the automation of contracts is then usually answered by the fact that the organization currently does not have the contract volume to consider a technical solution for the existing contract process.
If you then look at the issue in more detail, it usually becomes obvious relatively quickly that the problems with contract preparation are not primarily having an impact in the legal department, but in the individual department of the organization.
Among the main issues affecting the effectiveness of your Contract life cycle This includes a lack of central contract storage, friction between teams, overburdened task assignments to the legal department, long contract cycles and a lack of overview of important contract deadlines.
Below, we'll go into more detail about each one-line aspect that could mean that your organization's contract process isn't working properly:
1. No central storage location/no contract reporting
Everyone in the company should actually be able to report to their manager. Sales usually talk regularly about the current state of the sales pipeline, while product developers are available to answer questions about the state of product development. Lawyers should also be able to report efficiently on their contract workflow without having to spend two days collecting all data together.
As a former banker, you know that a company's contracts must be reviewed as part of business divestments or financing. From a certain company size, these transactions are part of the agenda, as business areas are sold and bought at regular intervals.
However, this usually requires a lot of work, as the contracts are often not stored centrally in one place. Between transactions, however, it is very likely that the business will continue to develop and so will the contract volume. The compilation of all contracts in the organization is regularly the responsibility of one or two people in the legal department and often turns out to be true mammoth and/or Sisyphean work.
You usually hear the same answers when compiling contract information is more difficult than expected: “We couldn't find all contracts in CRM.” We're not sure if the versions stored on this drive are up to date.” “We can no longer find the final signed contracts, but we assume that this version is final.”
Sometimes contracts are spread across several company systems or occasionally in a remote filing cabinet, which was used by particularly eager employees to protect the contract from prying eyes once signed. All in all, it then takes days or weeks to collect all the information.
We recently had an interesting conversation with a major international hardware manufacturer who had to obtain a missing contract via detours and secretly from the customer because the original could no longer be found. So if you have to search for your contracts in more than one place and are no longer sure whether the saved version is the final one, then it stands to reason that you do not have an effective contract process.
Find out here how you can create your first central contract database.
2. Friction between teams
Legal departments are generally not managed as profit centers in large companies and, however, have difficulty enforcing costs for more legal staff. As a result, we often encounter legal departments that are fully utilized and yet have to deal with the minor legal problems of sales.
Conversely, sales staff are under internal pressure to meet set goals. This creates friction between sales and legal when, during the sales process, there are regular legal inquiries to an already fully utilized legal department, which stops and delays the process of forced measures. As a result, this leads to chronic upsets between the departments, which are not conducive to progress.
“If there are processes that could be automated to change this, it's hard to find a good reason why it shouldn't happen.”
For fast-growing companies and enterprise customers, good software, such as that offered by top.legal among others, can play a central role in resolving this conflict. For example, legal personnel with expertise can create contract templates that you forward to sales to create authorized contracts.
The template creators can respond to various cases and different customer requirements via optional paragraphs and optional formulations. Explanations in video and text format can help answer a large number of questions about the software.
Sales therefore has a clear structure and a defined margin of discretion to meet customer requirements. A clear rights structure for the templates prevents the process from being changed by unauthorized employees. In return, the legal department always knows at which stage each of the company's contracts is and which conditions have been granted to the customers.
Sales and legal departments therefore have a clear understanding of the roles and the process flow, so that frictions are avoided.
3. Overloaded legal department
It has now become a practice in many companies that work is not over even on Friday evening. This applies in particular to employees of the legal department. All too often, the task list of in-house lawyers is inflated by minor tasks such as preparing and reviewing simple contract documents. People often ask themselves the same simple questions several times a day. As a result, the really important tasks do not get the attention they deserve.
The various departments of an organization are often dependent on input from the legal department, even though the value of the contract for the entire organization is relatively small. We are observing that with this constantly growing list of tasks for the legal department, important projects fall by the wayside and thus slow down the organization. Although many legal departments are aware of this issue, we can still see little movement in the area of process automation.
If your legal department is piling up smaller contracts, questions can only be answered hesitantly and really important projects fall by the wayside, this is a good sign that the contract process is not working.
4. Long and opaque contract cycles
If you talk to the legal departments of many medium-sized companies, you unfortunately have to find out that the average duration of a contract conclusion is more than 70 days.
However, the actual net negotiation time, i.e. the time that you actually spend negotiating contracts with the other side, is far below this figure. The time to define the key parameters from a business perspective is often just a few hours.
If you search for the real reason for the long contract cycles, you usually come across a number of administrative tasks and inefficient processes. This includes endless email chains (including to arrange a negotiation date), sending and subsequent revisions of confusing notes in markup mode in an old-fashioned Word document, lack of version controls, versions that overlap via email, notes that are based on old versions and pdfs with handwritten notes that are often difficult to decipher.
In particular, the long period until a contract is concluded is usually a good indication that the contractual process implemented for the agreement and conclusion of contracts is not working or is only working poorly.
On the corporate side, top.legal is often brought into play to solve exactly these problems, which can often be traced back to a manual contract process. In doing so, we are confronted with the usual suspects mentioned above, Microsoft Word, email, DocuSign and many frictional losses that slow down sales cycles.
5. Lack of overview and missed contract deadlines
If you've ever been affected by missed withdrawal or notice periods, you know the problem. You pay for software or products that you just wanted to try out at first, but for various reasons cannot be integrated into your software systems and production lines, and for which you still have to pay for due to carelessness.
The situation is similar with the deadlines for contracts that have already been concluded with your paying customers. As a rule, your customers expect timely delivery of the paid service on a fixed date. For a few customers, delivery dates can still be easily recorded via Outlook or other calendar software. Once you have a certain number of contracts and employees in your company who have to deal with the performance of the service, things can become critical.
“Decision-makers don't have to press a reset button and start from scratch to noticeably improve contracts.”
We listened carefully to decision makers from large companies when they talked about the confusion of contracts in their companies. With this knowledge, we have gradually integrated an overview dashboard into the top.legal software to show department heads and responsible persons where their contracts currently stand, with which counterparties contracts are being concluded and which version of the contract was used. Reminders can also be easily set for all contracts and templates.
Conclusion
When you see the problems mentioned above, you would think that only a radical revolution would bring about the solution to the problem. Experience in this area, however, shows that it can be better to solve inefficiencies one by one, one by one. In this way, negative effects on the business can be avoided and employees can be trained gradually and in a revenue-neutral manner on the new processes.
According to the motto “Something is better than nothing,” even small steps in improving the contract process can bring about significant changes. Having identified bottlenecks and inefficient work steps, it is usually worthwhile for many companies to initiate initial, smaller measures at an early stage, even if several projects have to be carried out at the same time.
