Contracts play an essential role in the success of any business but guiding them to execution can be an uphill battle for many legal departments. Fortunately, the era of technology birthed solutions built specifically for contract management and implementing the right solution can help cut spend, reduce review time, and positively impact material growth for your enterprise.
From the Magna Carta first establishing control of royal power to a young America’s Louisiana Purchase of 827,000 square miles from France to superstar athlete Lionel Messi’s colossal deals, contracts are everywhere.
In fact, chapter two of the Enterprise Legal Reputation (ELR) Report, a multinational study spotlighting how legal professionals perceive their interactions with internal clients, disclosed that nearly half (43%) of legal departments globally handle up to 1,000 contracts each year – a towering number that leaps even higher in the United Kingdom, where one in four (25%) legal professionals process at least 2,000 contracts yearly.
A main source of friction in the contract lifecycle comes from balancing speed and control. Legal professionals in the United Kingdom have the fastest contract execution, with nearly two in five (38%) reporting an average of less than three months. In the United States, the highest percentage of contracts (35%) are finalized in four to six months, whereas Germany (49%) and France (45%) generally take seven months or more. While the norm, the truth is slowly executed contracts can impact business adversely, negatively affecting everything from deal closure and revenue generation (44%) to vendor procurement (42%) to mergers and acquisitions (23%).
Legal’s number-one perception is as protector of the business. But being guardian of the enterprise means protecting how and where business is done — and contract lifecycle management (CLM) provides a major opportunity for Legal to evolve its role and influence on revenue generation and operational efficiency.
Time is money… and too much is spent on contract review
According to the ELR Report, two in five legal respondents (40%) spend four to five hours — at least half of every business day — reviewing and managing contracts. That means half of their work weeks, quarters, and fiscal years are spent manually reviewing contracts. In Germany, as many as one in five (19%) spends six to eight hours daily. And in France, one in 10 (10%) spends more than eight hours each day reviewing and managing contracts leaving them with little time to dedicate to higher-value work.
Let’s take a moment to calculate this. Say a legal professional earns an annual salary of $150,000 USD. If half their hours are unavailable for anything but reviewing contracts, that equates to $75,000 each year going to directly to contract management. If there are 10 members of the legal team, that’s three-quarters of a million dollars every year processing contracts.
Is this how Legal wants to spend its valuable time? And is this how corporations wish to spend their money?
Automated contract management means more time for higher-value work
When it comes to contracts, it can often seem like a case somewhere between “a watched pot never boils” and “too many cooks spoiling the broth.” There’s so much creating, redlining, changing — and then more drafting and reviewing — and each step slows down execution.
If Legal is required to draft, review, and approve every single contract, there will be backlogs and bottlenecks. But the process of contracting doesn’t have to be overwhelming and seemingly endless. Implementing state-of-the-art CLM technology can eliminate contracting roadblocks by:
1. Elevating collaboration. Every department creates and manages contracts. But not every internal function uses the same system for contract management. Global enterprises deal with the added challenges locations, time zones, and languages. CLM technology can automate workflows and unify processes, providing the same data on all web browsers and devices for every department, from legal to sales to procurement. This can break down silos, reduce bottlenecks, and significantly shorten contact times.
2. Advancing visibility. Despite the benefits of CLM, only 54% of legal respondents globally acknowledge their contract processes are automated. But with CLM solutions, Legal can have a comprehensive view of the entire contracting cycle at once, as well as a library of up-to-date contract-generation clauses that can lessen risk and ensure consistency. This has proven to boost productivity by more than 51%, so your team can spend less time working on contracts and focus more hours on higher-value work.
3. Accelerating revenue recognition. When it comes to contracts, artificial intelligence (AI) takes things to the next level. On average, 51% of legal professionals use AI in operations. Departments in Germany (60%) and the United States (57%) are most likely to have integrated AI, whereas only 43% in France and 34% in the United Kingdom have. CLM powered by AI can identify and escalate potential issues, extract necessary data for commercial and regulatory changes, and redline in less than two minutes – closing sales cycles faster up to 24% faster and saving most companies at least nine percent of their annual revenue.
All departments hire people, negotiate with clients, procure vendors, and make agreements that ultimately lead to contracts. Legal must take control of the entire contract management process with end-to-end automation — from capture and creation through negotiation and execution. Doing so will skyrocket cost and operational efficiency as well as topline revenue generation for its businesses, proving Legal to be the transformative agent it truly can be.
Read the ELR Report to learn more about how legal professionals view their relationships with internal clients in comparison to the image enterprise employees have of their legal departments.
*The ELR Report is a third-party, multinational study of 4,000 enterprise employees and 500 corporate legal professionals across the United States, United Kingdom, France, and Germany intended to showcase relationship dynamics and perceived image between corporate legal teams and enterprise organizations.