Contract management mistakes are prevalent in businesses of all sizes, regardless of the competence of their legal teams. Throughout the lifecycle of a contract, various errors can occur, ranging from inconsistent language to inadequate visibility. Once these mistakes become habitual, reversing them becomes challenging, especially for a growing business.
If left unaddressed, these errors can impede revenue growth. Contracts play a crucial role in revenue recognition, so any complications in the contract process can significantly impact the financial outcome.
To prevent these contract management mistakes from escalating, it is important to identify and avoid them proactively. Hence, we have compiled a list of the 10 most common contract management mistakes, as well as how to prevent them with the ConvergePoint software.
The Most Common Contract Management Mistakes
1. Employing varying language and terms across contracts
In the realm of contract management, contract pitfalls commonly witnessed in businesses is the lack of consistency when drafting contracts. This inconsistency manifests in various ways.
Primarily, it involves the inconsistent utilization of specific language, leading to the inclusion of unauthorized terms and language in business contracts. Consequently, this introduces ambiguity and confusion. Additionally, commercial teams often introduce new contract terms that introduce unnecessary risks and create discrepancies across legal agreements.
The absence of pre-approved language and standardized clauses not only makes the process of contract creation excessively time-consuming but also elevates the associated risks with certain agreements. Such risks can prove to be financially burdensome in the long term.
The Contract Management Software is the solution!
An example of such software is ConvergePoint, which automates contract templates, empowering legal teams to effortlessly create and implement contract templates throughout the organization. This functionality allows legal teams to incorporate specific terms and clauses into contracts based on the values provided by commercial teams, simplifying the process and ensuring consistency.
2. Excluding commercial teams in contract negotiations
Another significant contract management mistake is the failure to involve relevant stakeholders, especially during the negotiation stage. It is not uncommon for legal teams to exclude commercial teams such as finance, HR, sales, and procurement from the contract process until the final stages. However, this oversight can neglect the specific needs of these teams and the long-term strategic objectives of the business.
So, why does this happen? Legal teams often have concerns about involving too many parties in contract collaboration, as it may increase risk. There is also a fear that it could become unproductive and lead to longer contract turnaround times due to back-and-forth discussions.
Therefore, with contract automation software like ConvergePoint legal teams can set up contract templates for commercial teams to use as well.
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3. Neglecting significant obligations and missing deadlines
Many businesses have encountered situations where they are automatically locked into renewed contracts simply because they missed the cancellation deadline Over time, accumulating missed renewal dates can negatively impact the company's financial performance and lead to frustration within the organization.
Without a reliable contract tracking system implemented across the business, important obligations can be overlooked, teams may miss significant contract milestones, and maintaining contract compliance can become a daunting challenge.
Fortunately, there’s a simple solution to this problem: contract renewal reminders!
The ConvergePoint contract repository collects information like contract terms and renewal dates as you create your contracts, meaning you won’t have to waste time tagging and recording this data manually. These dates are then recorded in the software, where you can set up customizable notifications to remind you of important dates and ensure you never miss another renewal.
4. Allowing multiple tools to hinder the contracting process
In the past, a significant pitfall in contract management was the insufficient adoption of technology, leading to reduced efficiency and quality in performance and analysis. However, with the utilization of a contract lifecycle management platform, this inefficiency is eliminated.
ConvergePoint software, for instance, integrates all individuals, processes, and documents into a unified location, enabling seamless management. From the emergence of e-signature tools to the current availability of comprehensive lifecycle platforms, it is now much simpler to manage contracts in a connected manner that aligns with the pace of the rest of the business.
5. Losing control of contract versions
In-house lawyers are well-acquainted with the challenge of losing version control. The extensive back-and-forth interactions between counterparties and internal teams often make it difficult to determine the definitive final version of a contract which leads to contract pitfalls.
This issue leads to further complications, such as uncertainty about whether all the required changes were accurately captured during negotiations or the inadvertent submission of an unapproved contract for signing.
Having inadequate control over contract versions poses risks and undermines a business's standing. It stands as one of the most detrimental pitfalls in contract management, and these contract management mistakes that businesses used to encounter often.
The ConvergePoint software enables real-time collaboration on contracts through ‘Communication Tasks’ in the personal dashboard Parties involved can engage in collaborative efforts by tagging relevant individuals, leaving comments, and making edits to the contract, all without the need to save the file and send it via email to the other party. These modifications occur instantly, and all parties receive immediate notifications regarding any changes made, ensuring seamless and efficient collaboration.
6. Focusing on the wrong terms and risks
During the contract review process, it is common to become overly focused on specific terms and risks, often overlooking the broader context.
However, utilizing an online negotiation platform and allowing multiple stakeholders access to the document through a contract lifecycle management platform such as ConvergePoint CLM software can address these challenges effectively. By streamlining communication and ensuring easy accessibility for all key parties, these tools help maintain high involvement levels and enable teams to concentrate on crucial contract aspects and effectively manage risks.
7. Not capturing and using contract data efficiently
A common contract management mistake is viewing contracts as one-dimensional. Contracts are often treated as mere formalities or administrative procedures, without recognizing their broader value.
This leads to neglecting the data contained within contracts. After signing, contracts are typically stored away in shared drives or filing cabinets, disregarding the valuable insights that the contract data can provide. This data can reveal areas for process improvement, such as identifying highly negotiated terms, opportunities for upselling and renewals, and frequent obstacles in contract execution.
Businesses often overlook this data, but those who leverage it gain a competitive advantage with improved business relationships, streamlined contract workflows, and more effective negotiations.
The quickest and most efficient way to capture contract data is to build your contracts with structured data, to begin with, which can be done using the ConvergePoint contract automation tools.
8. Insufficient visibility throughout the contract process
Like the previous point regarding the limited accessibility of contract data, businesses often suffer from a lack of visibility throughout their contract process. This means that both legal and business teams frequently lack awareness of the contract's lifecycle stage, storage location, and responsible parties involved.
This issue arises due to the existence of multiple versions of the same contract scattered across various shared drives and files, resulting in difficulty locating the relevant information.
The lack of visibility creates confusion within the business. Sales teams remain uncertain about the proximity of a sales contract to finalization, HR teams struggle to determine if a candidate is open to negotiating the terms of their employment contract, and finance teams encounter challenges in accurately projecting revenue.
Take ConvergePoint software as an example, which generates a comprehensive audit trail for contracts crafted within its platform. This audit trail provides a clear record of who made specific modifications and the nature of those changes.
Moreover, it offers the functionality to filter contracts based on their status, allowing users to customize their dashboards. This feature facilitates the visualization of the contract's stage and identifies any potential obstacles or roadblocks encountered during the process.
9. Dependence on outdated signing methods
Even in the present day, businesses frequently commit a common contract management mistake by depending on outdated signing methods, such as wet signatures, to finalize contracts. As more business relationships extend across borders, relying on wet signatures poses challenges for clients in completing agreements.
When dealing with non-local customers, the use of wet ink signatures necessitates the cumbersome process of emailing the contract, saving it as a PDF, printing it, signing it with a pen, scanning it, and returning it via email. However, this process is tedious, and unnecessary, and significantly slows down the deal-making process.
The ConvergePoint software enables users to sign contracts electronically in the same workspace they created and negotiated their contracts in, making it even easier than the solution provided by most other eSignature providers.
10. Lack of clarity in contracts.
A major challenge in contract management lies in the lack of clarity and scope regarding the goals and agreements between both parties. Without clear objectives, contracts can be overwhelming, and there is a risk of signing without a complete understanding of the terms.
By utilizing a contract lifecycle management platform such as ConvergePoint, summaries of key services and conditions can be conveniently displayed alongside the contracts themselves. This feature makes it easier to grasp the overall view, especially for longer or more intricate contracts.
Additionally, the platform facilitates discussions and comments in a centralized panel, simplifying the process of seeking clarifications. This efficient review process optimizes communication between parties, minimizing the chances of claims or disputes arising.
Related Article: Using AI to Summarize and Review Contracts Quickly
Conclusion
Avoiding contract pitfalls and steering clear of contract management mistakes is crucial for businesses to thrive. By recognizing and understanding the contract pitfalls, businesses can take proactive measures to mitigate contract management mistakes and ensure smoother contract management processes.
Looking for a way to automate your contract workflow and eliminate costly contract management mistakes?
Try the ConvergePoint contract management software - an all-in-one contract automation platform that helps visionary legal counsel and the teams they enable to agree and manage contracts in one unified workspace, resulting in greater consistency and less contract management pitfall risk.
Request a demonstration now to unlock the full potential of your contracts!