Contract Automation: Software for Faster Agreement Processes

Contract automation software aims to digitize and simplify contract processes for increased productivity across the organization. This comprehensive guide covers typical contract processes and how contract automation can be applied, as well as key differences between AI Contract Review and Contract Lifecycle Management. 

If you’d like to go deeper on pre-signature contract review, you can read our full guide on AI contract review software and book a demo to learn how LegalOn can help.

What is Contract Automation?

Contract automation software aims to reduce the bottlenecks, busywork, and errors inherent in paper-based contracting. It enables your sales, legal, procurement, and other teams to move efficiently through repetitive tasks. Before diving into contract automation features, let’s quickly visualize the key steps of a typical contract process:

1. Intake: A business partner, such as sales or procurement, seeks assistance from the legal team to generate a new agreement or review a new or existing contract.
2. Draft: For agreements on a company’s own paper, legal generates the requested contract using a contract template, past agreement, or clause library.
3. Review: Legal reviews draft contracts that originate from the other party (e.g., “third-party paper”) and reviews redlines to company contracts. Review can be based on a playbook, clause library, or a reviewer’s own experience.
4. Negotiate: Drafts and redlines move between legal teams and counterparties for negotiation, resulting in multiple versions that are each reviewed until a final version is ready to be signed.
5. Approve: Designated approvers, which may include business and finance teams depending on contract and company policies, review and approve a final version. Approvals may be sought during the negotiation or after sign-off by legal.
6. Sign: Internal and external signatures executed, often through an e-signature tool.
7. Store: Executed contracts and prior versions are stored and organized in a secure, searchable repository. 
8. Manage: Track contractual commitments within your agreements with vendors and customers, including as contracts come up for renegotiation and renewal.

Contract automation software supports different parts of the contract process, enabling legal professionals to create, review, approve, and manage contracts in a fraction of the time required by manual contract processes. 

Contract Lifecycle Management (CLM) software helps organizations create, negotiate and store contracts in a centralized repository. CLM software helps larger organizations mitigate risk by enabling regulatory compliance, providing signature governance, and establishing role-based access to terms and obligations. While CLM is generally considered to touch upon many of the steps of a typical contract process, many companies implement CLM for only one piece of the process, such as storage.

Contract review software specializes on accelerating the pre-signature processes, including Draft (#2), Review (#3) and Negotiate (#4). As such, teams may opt for contract review software alone, or pair contract review and CLM software to automate work across the entire process. 

Benefits of Contract Automation

Most organizations rely heavily on contracts in their business relationships. However, many organizations still manage this work using a fragmented collection of Word documents, emails, spreadsheets, and manual steps.

This status quo of manual contract management produces a number of inefficiencies:

• Revenue delays: Contract delays can reduce sales velocity
• Version control chaos: Multiple contracts lacking a single standard
• Compliance risks: Unauthorized changes and audit failures
• No source of truth: Contracts scattered across different tools and computers
• Unscalable processes: Repetitive, low-value manual work for even minor changes

In contrast, contract automation software aims to bring order to the chaos by digitizing and optimizing contracting steps. Benefits of contract automation include:

Improved customer / vendor experience: Contract automation can help teams complete contracts faster, building trust and delighting internal and external customers along the way.

Increased business velocity: Automating contract creation, reviews, negotiation, approvals, and tracking removes friction and delays to move the business faster.

Increased productivity: With contract automation, legal teams focus less on routine, repetitive tasks and more on high-value strategic work.

Enhanced compliance: Contract automation provides structured and consistent oversight and reduces risks at scale by providing configurable controls around approvals, permissions and versioning.

Increased visibility and control: Organizing contracts in one place, with key obligations tracked, makes it easier for the legal team to manage contracts, report on contracting processes, answer contract questions, and take action as needed. 

Who Benefits Most from Contract Automation?

While legal teams frequently deal with contracts on a daily basis, many other teams win with contract automation:

Legal Teams: Increased productivity helps overstretched legal teams support business growth without proportional hiring, while lowering risk exposure for the organization.

Compliance: Automated controls around approvals, permissions, and versioning help to reduce audit work, failures and contractual risks.

Procurement: Faster reviews of vendor agreements and a central repository of supplier contracts allows better enforcement of key terms as well as pricing control.

Finance: Payment automation reduces collection costs and Days Sales Outstanding (DSOs), while clean audit trails improve compliance.

Sales: Quicker cycle times accelerate deal closure and positively impact sales velocity. Improved visibility into contract status also helps Sales teams improve forecasting accuracy and can automate “status updates” that otherwise take time.

HR/Recruiting: Speedy offer generation, approval, and signature reduces hiring cycle times, enabling organizations to secure top talent faster.

IT/Security: Access controls, audit trails, and an approval matrix help to increase information security.

Contract Managers: Automated contract management software provides contract managers with one central platform for creating, reviewing, searching for, and managing contracts, reducing the time spent on manual processes and enabling more strategic decision-making.

Key Types and Features of Contract Automation software

At a high level, contract automation includes two key stages: (1) Pre-signature and (2) post-execution. 

Pre-signature automation is focused on reducing the time required to get to an acceptable contract. Best in class AI contract review software includes contract templates, review playbooks, contract comparisons, AI redline suggestions, and other such features.  

Meanwhile, post-execution automation is focused on managing contractual obligations and renewals at scale.  As such, Contract Lifecycle Management software typically includes document storage, tracking, risk monitoring, and expiration reporting. 

Pre-Signature Contract Automation: AI Contract Review

Pre-signature automation is typically managed through AI contract review software that is purpose-built for pre-signature contract processes. While some CLMs offer automation around pre-signature review, AI contract review software delivers a more focused solution, and thus has a greater impact on the efficiency of the contract review process.

Effective AI-powered contract review software contains a suite of capabilities to accelerate and support the work of reviewing contracts. The software can automatically scan agreements and spot potentially problematic issues – that could include language that is missing or excessive, terms that are unfavorable, or terms that deviate from company norms, preferences, and playbooks.

Best in class platforms enable search across an organization’s full contract database to instantly pull up related past agreements. Lawyers can quickly compare the latest draft against these precedents section-by-section to identify language deviations with precision, no matter how contracts are structured. Once differences are found, the software facilitates focused redlining at a word-by-word level, suggesting targeted changes rather than overwhelming the counterparty with whole provision swaps.

Some of these platforms work right out-of-the-box, with pre-built templates and industry standard playbooks that enable legal teams to begin reviewing immediately without costly up-front training. For smaller legal teams, libraries of pre-vetted templates and playbooks often have a meaningful impact on the speed at which these teams can draft and review new types of contracts. In addition, most platforms enable users to build custom playbooks that are trained to align with internally defined best practices. Once built, custom playbooks can then be used to standardize review procedures across the company.

Top platforms integrate all these features together to augment the legal team’s ability to move quickly and efficiently through contracts from Day 1.

Post-Execution Contract Automation: Contract Lifecycle Management

Contract Lifecycle Management (CLM) software also addresses some aspects of pre-signature review with features like contract creation tools, routing automation, and approved libraries of customizable templates. However, CLMs can help most when you have many contracts in force. Notifications, reminders, signatures and searches can be executed at scale. Moreover, tight integrations with existing business systems can streamline processes and systems across teams.

Core infrastructure elements of CLM software often support a unified searchable repository for all contracts, documents, and contract-related communications. Additional features such as  electronic filing, deadline tracking, and analytics/reporting engines can also help to streamline post-execution contract processes. Moreover, end-to-end encryption, access controls, authentication and permissions help ensure corporate governance and reduce risk.

Evaluating Contract Automation Systems

Our recent survey found that 80% of legal teams are already using or are open to considering AI contract review software. In contrast, only 36% of legal teams use a CLM, according to a recent study by Zuva. If your legal team is prioritizing efficiency, we have made a simple outline to help you determine which software to explore further:

AI Contract Review Software:

• Focuses primarily on the review and negotiation stages of the contracting process
• Compares past and present agreements, standardizes contract language, and ensures adherence to company playbook rules  
• Features may include automated redlining, risk analysis, context-based suggestions, auto-corrections, and analytics data
• Advanced solutions use AI and NLP for increased speed and accuracy and integrate attorney-drafted playbooks and practice notes for Day 1 efficiency 
• Comprehensive solutions work with third-party paper and redlines to company paper, including NDAs, vendor agreements, sales agreements, licensing agreements,  and others

AI contract review software is often less expensive than CLM software. Implementation timelines can be as short as 1 day when teams use pre-built playbooks; customized playbooks can be built and implemented within weeks, not months.

Contract Lifecycle Management (CLM) Software:  

• Focuses on a broader set of stages throughout the entire contract lifecycle, including creating, storing, and managing contracts.
• Features may include contract requests and intakes, centralized document storage, search capabilities, automated alerts, reporting dashboards, customizable security, clause and template libraries, versioning, e-signatures, and tracking
• Can vet vendors, authorize requests, and create templates, as well as conduct post-agreement tracking
• Helps accelerate contract approval, eliminate discrepancies, and integrates with other systems like order fulfillment and billing.

CLM software is often more expensive and complex to buy and implement. Implementation is frequently a multi-month endeavor and requires other parts of the business to buy in: sales, procurement, finance, and legal.

Conclusion

Implementing contract automation is a valuable step for organizations seeking to improve their contract review processes and reduce the work of manual contract management. Contract automation software empowers legal teams to focus on more strategic work, rather than getting stuck in repetitive, low-value work. By embracing contract automation, legal teams can improve efficiency, reduce risk, and ultimately contribute more to the organization's overall success.

When considering implementing contract automation, it's essential to evaluate the organization's existing process and identify areas where automation can provide the most significant benefits. Pre-signature contracting work, like contract review, can be improved with AI contract review software that is designed to find and fix issues in contracts before they are signed. CLM software addresses some aspects of pre-signature contracting work, like generating contracts from templates, but is often used after contracts are executed, for storing, searching, and notifications. CLMs and contract review software can work hand-in-hand and should not be viewed as competing, since they improve different parts of the contracting process.

Many organizations today report that the most painful, time-consuming part of their overall contracting work is contract review and negotiation. If your organization is similar, contract review software will offer the most benefits. Only 36% of organizations find that a CLM is the right choice for improving their contracting work. 

When it comes to improving contract review and negotiation, best-in-class AI contract review software, like LegalOn, speeds up and improves the quality of contract review and negotiation by providing AI-powered analysis and suggestions. Legal teams see benefits right away.

In contrast, CLM software manages the entire contract lifecycle, using data integrations with other tools and routing work between teams like legal, finance, sales, and procurement. While CLM solutions typically include some features targeted at the contract review stage, those features are significantly less complete than contract review software. Legal teams should expect CLM implementations to last several months.

Innovative legal teams are using LegalOn – the global leader in AI contract review software. If you’d like to explore how AI contract review software can help your organization, we invite you to book a demo to see the speed and accuracy gains you can easily achieve right away with LegalOn.