Contract Automation

What is Contract Automation?

Contract automation refers to the use of technology to streamline and manage the process of creating, reviewing, approving, and managing contracts. It involves utilizing software tools to automate various stages of the contract lifecycle, from drafting and negotiation to execution and post-signature management.

The points of focus for contract automation are:

  1. Drafting — Automated templates and clause libraries help create consistent and compliant contracts quickly.
  2. Review and approval — Automated workflows route contracts to the appropriate stakeholders for review and approval, reducing bottlenecks and ensuring that necessary checks are performed.
  3. Execution — Electronic signature tools facilitate quick and secure contract signature, eliminating the need for physical paperwork and static PDF files.
  4. Management — Post-signature, contract automation software helps track key dates, obligations, and compliance requirements, reducing the risk of missed deadlines or breaches.

A lack of streamlined document generation, signature, versioning, and storage procedures makes the traditional contract management process prone to errors and compliance issues. Automation through software platforms and generative AI reduces manual input and human error, speeds up the turnaround time of negotiations, and ensures consistency and accuracy in business contracts.

Synonyms

  • Contract automation software
  • Contract lifecycle automation
  • Contract review automation
  • Contract workflow automation
  • Sales contract automation
  • Business contract automation

Contract Management Challenges and Solutions

Challenges

The biggest challenge teams face when it comes to managing contracts is keeping up with the high volume of documents and their associated tasks — tracking deadlines, renewals, and amendments. For new deals, there are the additional tasks of drafting, negotiating, and approving terms. Every step of the way, this is remarkably time-consuming and error-prone.

Businesses also face challenges with:

  • Visibility and control
  • Version control and storage
  • Collaboration and communication hurdles in document sharing/editing
  • Inconsistent or entirely inaccurate contract terms
  • Manual data entry into CRM or ERP systems
  • Compliance (or lack thereof)

Most of these challenges stem from manual processes and disparate systems, which complicate contract management. Without a centralized repository, businesses have to rely on email, PDFs, and third-party storage methods that result in silos, data loss, missed deadlines and obligations, and noncompliance with regulatory requirements.

Solutions

Contract automation helps businesses by:

  • Centralizing contract data and negotiations. By providing a single repository for all contracts, this makes it easier to collaborate with colleagues, track versions, update terms, and store documents in real-time.
  • Streamlining workflows. Automated workflow maps and triggers send contracts through review cycles with the right stakeholders at the right moment, with no bottlenecks.
  • Enforcing version control. Automated contract drafting software and robust versioning help businesses avoid the errors that arise from manual data entry or editing.
  • Ensuring compliance and oversight. With a repository of contracts, teams can easily perform document searches and see any contract’s status in real-time, reducing the risk of missed deadlines or noncompliance penalties.
  • Reducing risk and accelerating time to close. With contract automation, businesses minimize manual errors, find the right terms faster, and close deals more quickly than they would using traditional processes.

How Contract Automation Works

Contract automation leverages software tools and workflows to simplify the entire contract lifecycle. It involves four key elements:

  • Contract templates
  • Automated workflows
  • E-signatures
  • Software integrations
  • Contract lifecycle management

Contract Templates

Contract automation software allows users to quickly generate contracts by selecting the appropriate template and populating it with specific details such as party names, dates, and payment terms. The software can automatically pull in relevant clauses from the clause library based on predefined rules or user input.

Examples of templated contracts include:

  • Master service agreements
  • Non-disclosure agreements
  • SOWs
  • Sales contracts
  • Employment contracts

During the contract creation process, businesses can even use contract AI to generate clauses based on pre-defined rules and the type of contract, further increasing efficiency and consistency.

Automated Workflows

Businesses can set up automated workflows to manage the entire contract lifecycle, from initial drafting to negotiation and execution. For instance, a software admin can create a document approval workflow that automatically routes sales contracts over a specific dollar value or with particular discount terms to corporate leaders for review and approval.

An automated workflow works by setting up triggers and conditions on the contract automation sotware’s backend. Every time that trigger occurs, the system automatically begins the defined workflow, reducing the need for manual oversight and speed up approval processes, minimizing bottlenecks.

E-Signatures

E-signatures are secure electronic signatures that simplify and streamline the contract signing process. They enable businesses to obtain legally binding signatures from parties located in different parts of the world, speeding up contract execution.

The process is simple:

  1. The contracting parties receive an email or message with a link to the contract.
  2. Each clicks the link individually.
  3. They follow a guided process to add their signature.
  4. They receive a signed copy of the contract for their records.

E-signatures are legally binding in most countries (via a clickwrap agreement) and widely accepted by courts worldwide, making them a convenient and secure way for businesses to complete contracts quickly and efficiently. Contract automation software either integrates with third-party e-signature tools (e.g., DocuSign) or has e-sign built into the platform.

Software Integrations

Contracting software integrates with all your other platforms that are closely related to the contract process:

Integration can occur through direct application program interface (API) integration, or built-in connectors.

Contract management automation software also connects and streamlines contract data with related systems. For example, pulling contract data into CRM records helps track deal progress and forecast revenue. With integrations, businesses can quickly generate contracts from within a CRM record, which is more efficient than navigating between disparate systems.

Contract Lifecycle Management

Contract lifecycle management (CLM) is the process of managing contracts from initiation to closeout. It describes the processes and tasks associated with managing all aspects of contracts, including drafting and negotiation, approval workflows, renewals, and contract tracking.

By automating the entire contract process with a CLM solution (which has contract automation built into it), businesses can save time and resources while ensuring consistent processes across all contracts.

Benefits of Contract Automation Software

By using standardized templates and clauses, businesses can ensure that all contracts are consistent in format and language.

This…

  • Significantly reduces the risk of errors and omissions
  • Ensures compliance with legal standards
  • Makes it easier to review and manage contracts

Automated workflows reduce the time-consuming manual tasks of drafting, routing, and approvals. And, by integrating with other systems, businesses can track contract data across their entire tech stack.

Within contracting software, analytics make it easy to understand contract performance and obligations. Companies can use this data to ensure they comply with their (and the other parties’) contractual commitments and maximize contract value without setting unreasonable deadlines or incurring noncompliance penalties.

Sales contract automation reduces time in the quote-to-cash process by eliminating manual tasks sales and legal teams would otherwise have to handle on their own. By using technology in the quote-to-revenue process, businesses no longer have to wait days for contracts to be finalized, approved, signed, and returned.

Overall, these benefits contribute to a lower overall cost compared to manual contract management.

Contract automation continues to evolve through technology advancements, with new tools and features being added regularly. As is true with the majority of technology, AI and machine learning are becoming increasingly integrated with contract automation. Blockchain is also making its way into contract automation, increasing the security and transparency of contracts.

Let’s dive into how you can improve the contract management process through automated software.

1. Better data and faster workflows with AI and machine learning

Advancements in AI and ML technology are making today’s contract automation software increasingly sophisticated. AI can automate repetitive and time-consuming tasks like clause selection, drafting, and review. This allows legal teams to focus on more strategic activities, which increases overall productivity and reduces turnaround times.

AI can also analyst large volumes of contract data to spot patterns, identify contract risks, and suggest the best terms for a particular deal. And it gets smarter over time — ML algorithms learn from past contracts and continuously improve their ability to identify errors, inconsistencies, and potential risks.

During the sales process, AI-enhanced negotiation tools can even suggest favorable terms and identify points of contention, making the negotiation process faster and more effective.

2. Blockchain for enhanced security and transparency

Once recorded, data on the blockchain cannot be altered or deleted, ensuring that contract terms and execution history remain unchanged and verifiable. It also creates an immutable record of all contract activities, providing transparency for everyone the agreement concerns.

Blockchain can also be used to automate certain aspects of the contract process beyond the legal agreement. Functionality for payments and delivery confirmations, for example, can be set up to trigger automatically once contract terms have been met.

The decentralized nature of blockchain makes it resistant to hacking and fraud, as altering data would require control over a majority of the network’s nodes. This significantly increases the security of contracts compared to traditional methods of storing and managing them.

3. Focus on user experience and integrations

User-friendly interfaces reduce the learning curve for new users and increase the adoption rate of contract automation tools within organizations. By designing interfaces that are easy to navigate and understand, users can quickly create, review, and manage contracts without extensive training​.

Providing customizable interfaces allows users to tailor the software to their specific needs, improving their overall experience and satisfaction. Contract automation users benefit from personalized dashboards, preferred workflows, and tailored alerts and notifications​.

In addition, contract automation software vendors are continuously adding more tools to their integration library. By connecting contract management software with other systems like CPQ (configure, price, quote), organizations can streamline their sales and legal processes even further. This also allows for better data tracking and analysis across different departments.

4. Prioritizing security and compliance

As data privacy regulations like the EU’s General Data Protection Regulation (GDPR) become more prevalent (and tighter), businesses have to prioritize security and compliance when managing contracts. Contract automation software can help by providing secure storage of contract data and ensuring that only authorize personnel have access to sensitive information.

Automation also helps with contract compliance by tracking expiration dates, renewal notices, and other important deadlines. This helps companies avoid missing key dates and potential penalties for breaches.

For customers and partners, this means automation facilitates a more transparent and trustworthy relationship, as they know their data is secure, and the company is following regulations.

5. Democratization of contract automation

These days, contracting software is much more affordable. And, since it’s cloud-based, it doesn’t require any expensive hardware or setup. As a result, smaller businesses can now afford to use contract automation software that was previously only available to larger organizations.

In addition, many modern contract automation tools are designed with the end-user in mind, making them easier for non-legal professionals to use. This means all departments within an organization can now benefit from its features, not just those who handle legal agreements.

6. Rise of smart contract applications

Smart contracts are self-executing contracts with the terms directly written into code. They automatically enforce and execute contractual agreements when predefined conditions are met. This automation reduces the need for intermediaries, minimizes human error, and accelerates the contract execution process.

You can also program smart contracts to automatically comply with regulatory requirements and company policies, ensuring that all contractual processes adhere to relevant laws and standards​. This is particularly valuable for contracts that include payment terms, as smart contracts can automatically trigger payments when an obligation is fulfilled.

People Also Ask

What is the difference between smart contracts and automation?

Smart contracts are a form of automation, but not all forms of automation involve smart contracts. Automation refers to the use of technology or software to streamline and simplify processes, while smart contracts specifically refer to self-executing digital contracts with terms written in code.

What factors should be considered when selecting a contract automation tool?

User interface and integration with your existing systems are the two most important factors when evaluating a contract automation tool. The tool should have an intuitive and user-friendly interface to ensure quick adoption and minimal training requirements​. And it should seamlessly integrate with your CRM, CPQ, ERP, and collaboration tools (e.g., Microsoft Office 365, Google Docs, Slack)​.

How do deal desks use contract automation?

Deal desks leverage standardized templates and clause libraries to quickly generate contracts tailored to specific deal types, ensuring consistency and compliance. Integrated collaboration tools allow deal desks to work with legal, finance, and sales teams in real-time, ensuring that all stakeholders are aligned and can provide input simultaneously.

AI can analyze contracts for potential risks and compliance issues, helping deal desks identify and mitigate risks early in the negotiation process. And automated tools provide detailed version control and audit trails, making it easy to track changes and maintain a clear record of the negotiation process.