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Agreements between parties have been around since the beginning of humanity. One population group would seal the deal with a handshake - possibly exchanging something at the same time- and the other group would for example eat and drink something together. Throughout the ages, agreements became more and more complex and man felt the need to write them down on paper. The ancient Greeks and Romans already did it, and we have kept this custom going.
What the Greeks and Romans didn’t have to take into account? Digital transformation and hybrid working. The amount of contracts that companies have to manage, nationally as well as internationally, while they work with different people from different locations… It’s challenging to make this process run smoothly. That’s why contract lifecycle management is a perfect candidate to include in your digital transformation project.
But what if there’s no clear process, and you do not have the appropriate tools to work with? Frustrations can start building up, for example about the content of the contracts and the exact agreements. It will definitely be frustrating if you have to start asking yourself where you left the contract, if it’s signed, and maybe if there even is a contract. Agreements are put under pressure (“I don’t think we agreed to this?”). This frustration is clear in every step of the so-called contract lifecycle.
In short: contract lifecycle management is a nightmare for many companies today. Still, there are possibilities to create added value, for the company itself as well as for the collaboration with others.
contract lifecycle management: where does it all go wrong?
Does your company still use paper or semi-digital solutions to carry out contract negotiations? You’re definitely not alone.
The entire contract negotiation process starts almost always at the moment that you reach a verbal agreement about the goods, the value and the timeframe in which the goods will be delivered by party A to party B
The first step: formulating the offer of cooperation, and exchanging it between the parties. Often, a lot of frustration builds up after this step.
If you only use paper contracts, you’ll recognize this scenario: making adjustments always happens manually, with a pen. Afterwards, these adjustments are processed and agreed upon by all parties. This is called redlining.
The risk? Adjustments are written down incorrectly, misunderstood, not accepted and so on. This leads to endless reworking, loss of time, and frustration - even more so when other departments such as legal or finance are also involved.
There are solutions to this problem, and many companies already use them today. We’re talking about document applications such as Word or Google Docs, in which it’s possible to track changes, and easily share documents with others. But things can still go wrong, mainly during version control.
ambiguity on collaboration.
Collaborating on a contract is a difficult point during the first steps of the contract lifecycle. That’s because most agreements are initially made by the sales department of party A and the purchase department/client of party B.
When, during the next steps, the contract is further elaborated, both parties often include even more departments such as legal or finance. That’s why the process takes so long, or why confusion arises on the contents. The result? Either the cycle takes forever and no one knows the status of the contract anymore, or the contract never sees the light of day because of misunderstandings.
a lengthy approval process.
Great, we’ve received the final version of the contract! In many companies, that’s when the approval process begins - certainly when the contract contains some specific agreements. And it’s the same story all over again: much time is lost during this process. Parties possibly enter a new negotiation phase. Frustrations are not uncommon, and it’s even possible that the collaboration ends here, and the contract is never signed.
Did the contract survive the entire approval process? Then it’s time for the next step: signing it. You already know that getting a signature can also be a lengthy process. What’s more, the original document has to be found, and sometimes the contract doesn’t even get a double signature in the end. Legally, these contracts don’t have much value.
Today, the use of digital signatures is growing. But many companies don’t know there are different types of digital signatures, or their legal value. Furthermore, legally, not every type of contract can be signed digitally. Some contracts only need an email to be approved, others, mostly those that have to do with recruitment, need a qualified signature in which the involved party shows they actually signed it.
The contract has been signed? Great! Now it needs to be filed - often a big cause of chaos. Where is the contract? Where is the original contract? Do we even have a contract? Many questions, which lead, in the worst case scenario, to you having to ask a copy from the counterparty… This is definitely a no-go in conflict situations, and in all other cases the other party will start to question the quality of your work.
Add to this that paper filing is often associated with classic problems such as moist and vermin, but also organization. Digital filing is the way to go - at least on the condition that everything is organized and controlled centrally.
discrepancies between agreements and used data.
Did you know that in many cases, the agreements in the contract are not the same as the data used in handling a transaction? There are differences in price and quality, and discrepancies in the payment term happen more often than not. Because in practice there’s barely any control, this can lead to financial, legal or other discussions.
no follow-up on the duration of the contract.
You didn’t have any problems in the previous steps? Then this might be the last obstacle: renewing your contract when its validity has expired.
Few companies have a decent follow-up system for their contracts (no, your colleagues’ great memory doesn’t count). The result: trouble with expired contracts or expired pricing arrangements, with all the detrimental consequences you can imagine.
In this case, a thorough proactivity and setting up alarm systems play the most important role.
We have to conclude that, in most companies, the entire contract lifecycle process does still not run smoothly in 2021, even though you would expect otherwise.
the solution: a correct contract lifecycle.
Do these situations sound familiar to you? There are many companies for whom the contract lifecycle management does not run smoothly. But there is a solution for all these frustrations and problems! Setting up a correct contract lifecycle, tied to a thorough contract lifecycle management, will without a doubt offer you some relief.
what is the contract lifecycle?
The contract lifecycle describes the different stages of a contract:
- the initiation, with a pre-agreement about the product, price and time as a starting point
- the negotiation
- the approval by different departments and authorities
- the signature
- the filing or archiving
Something that typically comes into play here as well: a correct reporting throughout the different stages, linked to other processes such as the order and invoicing process.
what is contract lifecycle management?
Contract lifecycle management is the process you need to put in place in order to execute, follow up and guarantee every step of the contract lifecycle.
This includes the correct digital solution to support certain steps - or the entire cycle-. You may be thinking of digital signatures right now, but know that you can embed the entire contract lifecycle in a digital solution!
advantages of contract lifecycle management.
A 360° approach, with a focus on different types of documents (not just contracts, but also other legal documents) and based on your current and future needs and processes: this obviously has many advantages. We’ll list the most important ones for you.
Everyone that needs access to the system, will have access. The streamlined approach makes sure every party can always consult the most recent information. It’s easy to find out who is responsible for a contract and what its status is.
a positive client experience.
A smooth administration, clarity about agreements - and the assurance that they will be met - and a proactive attitude thanks to the correct insights: a good contract lifecycle management leads to clear communication, a trustworthy image and a positive client experience.
Regulations are not only complex, but also subject to change. If contracts aren’t respected, this can lead to fines or even lawsuits. A digital contract lifecycle management will keep an eye on things such as contract renewals, extending licenses, controlling insurance certificates and so on.
useful business insights.
Thanks to the digital management of the entire contract cycle, you’ll receive a lot of data. Think of insights into which step(s) in the process will take a long time, or which clauses of a contract are adapted by almost every party. You’ll discover risks and opportunities, and you can make timely adjustments.
the next step?
An ideal contract lifecycle management gets rid of all your frustrations. If you go about it in the right way, that is. Because no, quickly implementing just any tool is not enough. You have to involve the right stakeholders, map out your current process, know what exactly it is you’re expecting to get from a solution and so on. Download our contract lifecycle management checklist to be sure you’re well-prepared for a smooth implementation!