Why Digital Contract Management is Right for You
If you’ve ever bought a house using a mortgage, you probably remember what seemed like hours of interminable reading, signing, and initializing, followed by trying to figure out what to do with this legal-sized stack of paper when all your file cabinets only held letter-sized paper.
Thankfully, today there is a better way. In the same way that enterprise content management (ECM) software has helped reduce paper and decrease the number of file cabinets in your offices, ECM can help with digital contract management as well.
Electronic contracts help simplify writing new contracts through the use of templates and help ensure that certain terms are defined and used consistently throughout the process and across clients and industries. Electronic contracts can also more easily be cited in other documents, and searched to look for specific terms or to find all the contracts for a given department or vendor.
There are also other ways that digital contract management can help your business:
A number of organizations are automating procurement (or e-procurement), according to one industry survey. In particular, organizations are likely to automate invoicing, with half of the respondents reporting a high level of automation and 14 percent saying their invoicing processes were fully automated. Nearly as high is automating purchase-to-pay systems, with 43 percent reporting a high level of automation and 25 percent saying their process was fully automated. Organizations also said they were looking at automating supplier information and supplier relationship management in the future.
Businesses such as hotels, with a large quantity of consumable items that are often re-ordered, are particularly likely to implement e-procurement, writes Tina Stehle in Hotel Business Review. “An automated inventory and procurement solution helps curtail maverick buying through approved vendor lists, pre-sourced catalogs and standard ordering and approval processes,” she writes. “Centralized tracking allows purchasing managers to monitor off-contract buying and ensures compliance with established contracts.”
Review and Approval
Managing complex contracts doesn’t need to involve complex administrative work. In fact, an Aberdeen Group study found that businesses with the shortest contract approval times were 84 percent more likely to have automated routing processes in place and 77 percent more likely to send auto-notifications of key contract dates.
Once contracts are scanned into the enterprise content management system, they can be assigned to staff members according to contract type and routed to various parties for simultaneous review, removing bottlenecks. In fact, automating contract review and approval helped the Texas A&M Health Science Center decrease processing time from six to eight weeks to one to two weeks per contract.
One of the biggest plusses of digital contract management is the ability to offer electronic signatures. If you haven’t looked for ways in which your organization can take advantage of electronic signatures, you’re missing out. And yes, in the vast majority of cases, electronic signatures are just as valid as ink ones.
Electronic signatures offer several benefits:
- An electronic copy doesn’t get lost or disappeared into a stack of paper on someone’s desk during the contract review process. People who don’t respond can be reminded. And if they can’t find it in their mailbox or workflow, another copy can be sent.
- For contracts that require multiple signatures, the various people can sign the documents asynchronously, rather than having a single paper copy that gets routed around. This saves time.
Contract Security and Storage
Even though a contract is electronic, you still need to set policies for how to keep it and protect it, Attorney Adam Atlas warns his clients in The Green Sheet. “How will contracts be stored? For how long will they be kept? How are they backed-up? Who has access to them? What happens if the primary server for contract data fails?”
Particularly with long-term contracts, it’s important to ensure that the electronic contract will still be readable by the end of the contract period, writes the UK’s National Archives. “The likelihood that information will be used by the business for longer than any given contract period means that particular attention needs to be paid to end of contracts and provision for the safe handover of information in usable forms, either to the contracting authority or another provider,” the organization warns. So, if some of your contracts are still written in WordPerfect and stored on Zip drives, you might have a problem.
Similarly, electronic contracts and the data on them need to be stored using the same sort of privacy protections as paper contracts. “As ISOs use various services to administer their digital contract records, they should adopt internal controls to make sure no single person can compromise critical ISO data or use it to take merchants or agents away,” Atlas writes. “The tools that make digital contract formation easy are also susceptible to security breaches against which the ISO should be constantly vigilant.”
On the other hand, it’s also possible for organizations to freak out about the security of electronic contracts while treating paper ones with equanimity, such as making multiple copies or leaving contracts around on a desk. Electronic contracts are no less safe than paper ones, and are often safer.
Records Management Policies
Since they don’t take up space, it may be tempting to keep electronic contracts around forever, even after they’re no longer in force. But that’s not always such a good idea, Atlas writes. In the same way you want to shred paper contracts when you no longer need them, due to the personally identifiable information on them, you also want to delete outdated electronic contracts to protect against thieves.
Managing contracts in an enterprise content management system simplifies records management in multiple ways. Records managers can be automatically notified when a contract is close to expiration, so that they can earmark it for renewal or automatic archival.
Keeping contracts in an electronic repository also simplifies compliance with records management regulations, as appropriate retention can be applied automatically.
“It’s so easy to keep all data forever, that we are sometimes reluctant to delete it,” Atlas writes. “This is not the best practice. Large quantities of data – especially including banking information and Social Security numbers – are attractive for identity thieves and other hackers. ISOs should therefore systematically delete data that is no longer necessary pursuant to a coherent policy.”
Contracts are a necessary evil. Digital contract management—which curbs costs, improves productivity and reduces delays in contract negotiation and approval—can make the contracting process itself a little less evil to deal with.