How to Reduce Risk with Digital Contract Management
Contracts make the business world go round. Whether it’s an offer letter, a non-disclosure agreement (NDA), franchise licensing agreement, statement of work, fixed-price supplier contract, or master services agreement (MSA), a contract is what joins multiple parties in agreement. Contracts protect company interests, clarify customer expectations and help CEOs sleep better at night.
But formalizing these business partnerships doesn’t begin or end by “signing on the dotted line.” Just like relationships, contracts are complex agreements that need to be managed before, and long after, they’ve been signed.
As organizations scale, implementing a proactive, digital contract management process helps reduce risk by standardizing and automating workflows and contract language—making agreement processes easier, more secure and more effective.
The perils of poor contract management
No one realizes the importance of a robust contract management process more than your company’s legal and IT teams. They’re the first line of defense for managing compliance, mitigating legal liability and internal/external security risks.
And they’re right to worry. In recent DocuSign surveys:
- 26% reported sharing a contract with the wrong party
- 46% could not locate a stored contract
- 73% said they frequently use email to send sensitive agreements.
More worryingly, 90% of survey respondents said human error significantly impacts their contracting process.
To fully explain how a digital contract management system and process can help your company, we should first look at how manual and outmoded methods hinder business productivity and introduce unnecessary risk.
The risk of losing top workplace talent
If you’re relying on an employee-led, repetitive, manual contract management process, be mindful of the unintended outcomes. Giving employees low-level, routine or frustrating tasks like ad-hoc approvals and legal busywork can turn off professionals who see their time as more valuable than that (because, well, it is). If you struggled with employee turnover during the Great Resignation (or you’re actively struggling with it now) you don’t want a cumbersome contract experience to be one more reason for folks to start updating their resumes.
Clunky contract review processes impact other, resource-constrained departments too. In the case of sales teams, this can delay or halt revenue generation—according to recent research, 45% of respondents reported challenges in the contract process that ultimately led to delays in closing deals.
The most common agreement preparation issues include:
- 62% rework due to errors
- 56% inefficiency from re-entering data from systems to contracts
- 50% difficulty maintaining security and confidentiality
A contract management process that automates much of the repetitive busywork and provides clear, automated routing, reduces human error and frees up high-value employees to do the top-level, strategic work they were hired for.
The risk of losing revenue due to incomplete, inaccurate or outdated contracts
You started a contract but never finished it. Did it get saved? Under what name? When you returned to it two weeks later, did you pick back up with the original version or start fresh?
Without a digital contract management system, you run the risk of contracts floating around in different versions and in various stages of completion. And when multiple team members have access to all of these versions, it becomes easy for multiple parties to update parallel copies, share the wrong document, or lose track of the document altogether. This leads to an all-too-common scenario of operating under a contract that was never actually signed.
Likewise, operating under an old or expired contract opens you up to unnecessary business risk, like leaving money on the table in a deal. For manufacturers, this could mean producing goods at higher, older costs, and charging too little to their distributors who sell them. For franchisors, this could mean a loss of several million dollars per franchisee due to outdated cost or payment terms. For procurement teams, this could mean millions of dollars lost in unwanted, unplanned renewals. For field service, this could mean needing to honor out-of-date warranties.
The risk of downstream consequences
Keeping track of record retention periods is a crucial aspect of company administration. If important records are left in employee inboxes, or local drives, instead of a centralized, well-managed location that is connected to your system of record, you’re left scrambling in the event of an audit or future legal proceedings. The legal risks don’t end there. When you operate under expired/unrenewed contracts—or unsigned ones—you open your company up to potential litigation. If your contract creators commit to terms that legal and IT departments aren’t aware of (like an accelerated notification period for data breaches), you open your company up to potential litigation and regulatory fines. And if you don’t have a great system for staying compliant with regulations, that’s an issue, too. Are your consumers protected against auto-renewing contracts? For which states? Do you know which of your contracts auto-renew?
We’ll stop with the anxiety-inducing questions because here’s the good news: There’s no time like the present to a) look at the risks that come with typical contract lifecycle management, and b) discuss how you can mitigate those risks once and for all with technology.
Diving Deeper: Risks of manual contract lifecycle management and how to overcome them
Contract lifecycle management is typically viewed as a five-stage process where contracts are created, completed and stored across an organization. Aside from the general challenges covered above, each stage of the contract process poses nuanced risks of their own. Here are the most common risks you may run into and what to do about them.
Stage 1: Document generation
Drawing up a contract starts with generating a document that captures relevant information and establishes the agreed-upon terms for all parties involved.
The risk: Manual workflows prone to human error
The information-gathering and contract-creation stages are time intensive for a single contract; the time investment feels even more daunting when you consider the sheer number of contracts your organization produces. Recent data we gathered revealed that larger organizations process on average 500+ contracts per month.
There are several difficulties that can arise during contract generation to cause your company risk:
Without contract templates, preparers have to create their own document—or copy language from a prior contract—and they can’t be sure they’re right. These could have outdated terms or have dependent requirements that aren’t applicable to contracts with other parties.
On the other hand, some enterprises have tons of templates but lack a well-managed template library, making it hard for preparers to find and access what they need. It’s not uncommon for large, global organizations to have thousands of templates. At that point, it’s not a template, it’s just another document.
Beyond templates, without documented, easy-to-access guidance, contract preparers may make vital business decisions in order to get an agreement done without understanding the financial or legal risk. What are the implications of changing payment terms from 60 to 90 days? What risk occurs by shortening data breach notification requirements? Who needs to approve such changes?
The solution: Create a centralized repository and automate pre-approved terms
As time goes on, companies accumulate templates, move them around, and edit them repeatedly. By centralizing contract creation in one online platform with a template library, you ensure everyone can access the most recent templates, changes are tracked and approved, and document preparers get clear guidance on what to use and how.
In addition, a digital contract management system automates many of the error-prone steps in generating a document, giving users the ability to generate documents with pre-approved terms, and populate them with data pulled directly from your CRM, ERP, HRIS, or other system of record. Switching to a digital contract management platform reduces contract drafting time by 80% on average.
Stage 2: Routing and negotiation
This is where you send the right contract to the right people at the right time. If you’re dealing with a contract generated by your own company, the contract needs internal reviews and approvals. Once the initial party is happy with the terms, it’s sent to all other parties for their review. The counterparties may make their own changes, which they may not track clearly, and which need to go back to the originating party for further negotiations and approvals.
For third-party agreements (those not generated on your paper), the process gets more complicated. Once received, the contract goes through stakeholder editing and needs to be routed through internal legal reviews and approvals in the right order. This can include, legal, deal desk, finance or even the executive level.
The risks: Lost or misplaced contracts, incorrect terms, non-standard obligations
Routing and negotiation get messy if everyone isn’t aligned. Negotiating back and forth about which parts of the contract to amend causes bottlenecks. Version control is also an issue; it’s hard to ensure everyone is reading the right version once collaborators have proposed edits. And that’s only if all the parties are upfront about their changes—counterparties don’t often track changes either deliberately or inadvertently.
Reviewers may not be working from a single clause library, miss counterparty changes, or be plagued with recency bias. To save time and speed up completion, employees may make changes without the correct approvals, potentially creating contracts that don’t meet company standards. This is especially common with third-party paper, where the original terms don’t comply with your policies and approval routing isn’t automated.
The solution: Automatically route contracts, compare and track versions, automate access to clause library
Not everyone in your organization has the manual contract workflow memorized. It’s not that simple: Approval chains and workflows vary depending on contract terms, region, contract type and value. By automating the flow of contracts, you make sure the correct approvals take place—and avoid missed steps that prevent a contract from getting to where it needs to be.
As contracts are red-lined by different parties during negotiations, it’s vital to know what has changed with each passing version. In a contract lifecycle management tool, versions are automatically compared (and changes are flagged) with each passing edit. Leading contract lifecycle management (CLM) solutions often include an easily accessible library of pre-approved clauses and fall-back options for non-legal users to leverage during negotiation.
Stage 3: Document signing
Once all parties are in agreement, it’s time to sign. Depending on your company or situation, you can do this physically with pen and ink or with an e-signature in a contract management platform.
The risks: Stalled signatures and fraud
Some contracts require the internal wrangling of multiple signatories, putting the process at risk of stalling, happening out of order, or missing crucial signatories. With remote contract signing becoming popular, you need to make sure your contract process is secure and verifiable in case you’re audited later.
Without a formal eSignature tool in place, document authentication is almost impossible. Modern documents need to be secured by Public Key Infrastructure (PKI) encryption or authentication through phone, access code, or SMS. While it may seem like the no-frills, free digital signature solutions get the job done, they don’t offer the same level of security.
The solution: Verify every signature—automatically
Find a contract lifecycle management platform with a built-in e-signature solution to rise above the risky “I just pasted an image of my signature into the PDF” move that happens all too often.
To improve security and efficiency, look for a e-signature tool that can automatically verify each signer’s identity online. This consistent, automatic verification gives you an audit trail, should you need that in the future, and it bolsters your business’ accountability and trust too.
Stage 4: Integration with other business applications
In an enterprise-sized organization, employees need to know that newly generated and signed contracts include correct and up-to-date information. The most common cause of rework? 62% of survey participants cited rework due to errors that could be prevented by pulling data directly from an integrated system of record or engagement.
Specific fields such as party name, date, address, limitations of liability, pricing payment terms, etc. are common across many contract types. Likewise, post-signature, many teams across the organization will need to access contracts, to kick off downstream processes and deliver on the terms. For example, once an offer letter is signed by a candidate, new onboarding documents (I-9, a technology issue, etc.) need to be kicked off securely from your HRIS.
The risk: Incorrect data entry and unnecessary manual downstream tasks
If the business systems supporting your contract process are not connected, your contracts may contain incorrect or outdated information. It’s critical that your contracts correctly reflect the data and information found in your core systems. And it is critical that completed, correct documents are connected back into the systems the business uses to fulfill the contract.
As multiple teams interact with contracts, wrong information can cause a domino effect of confusion and error. Disconnected systems force users to bounce between tools and platforms causing unnecessary risk from human error.
The solution: Automatically send and receive contract data from your tech stack
Connecting your CLM system to other existing data sources (such as a CRM like Salesforce or ERPs like Ariba) can reduce the number of redundant administrative tasks before and after the signature. It can also significantly reduce the amount of time spent toggling between systems (up to 26 days annually according to Harvard Business Review).
Stage 5: Search and analysis
The lifecycle of a contract is only getting started once it’s signed. Securely store the contract where you can retrieve or review it anytime to keep track of milestones and obligations. This step protects your company if anything goes wrong, helps legal, finance, and business users find previous contracts and related addenda, and equips your legal team to manage required actions over the life of the agreement.
The risks: Uncontrolled access and manual retrieval
According to DocuSign research, 46% of contract professionals have been unable to locate a stored contract. If people can’t find final contracts, how are they supposed to hold up their end of their agreement. Without visibility, it’s easy to unintentionally allow a contract to be auto-renewed or terminated.
Storing contracts improperly doesn’t just make them hard to find; it’s a major security risk. Scattered contracts across desktops, inboxes, company drives, or CRMs expose too many people to sensitive information. As your business grows, you’ll increasingly need a system to serve as both the source of truth for final agreements and your hub for strategically managing versions and permissions.
The solution: Secure, searchable contract storage
With a contract management platform, you eliminate the risk of losing track of important deadlines or details by making everything searchable in plain text. A centralized contract management system is built to be secure, with permission controls and identity verification.
How DocuSign CLM can help
Having the right software in place streamlines and standardizes the entire contract process—reducing busywork for employees and giving enterprise leaders peace of mind that their contracts are compliant and secure.
If you’re finding it difficult to stay on top of contract management as your business grows, you’re not alone. DocuSign CLM turns a complex, error-prone process into a smarter, easier and more trusted agreement management system.
- Optimize workflows and remove bottlenecks with automation designed to cut down on costly manual tasks and reduce human error
- Strengthen data privacy and compliance with enterprise-grade security, multi-step identity verification and advanced encryption
- Uncover AI-driven business insights that help close deals faster, reduce procurement costs and accelerate legal reviews
A Leader in the Gartner Magic Quadrant for Contract Lifecycle Management for the last three years, DocuSign CLM is fast becoming the need-to-have contract lifecycle management platform.