The ultimate guide to contract automation

We live in the age of artificial intelligence (AI). These days, it’s possible to automate most, if not all, repetitive tasks to a certain extent – and managing contracts is no different. In fact, if your business isn’t using contract management automation to manage routine contracts and contract lifecycles, you could well be wasting time and money.

Contract lifecycle management (CLM) is the process of managing contracts and engagement letters from initiation to execution; to renewal and re-engagement, or termination.

The contract lifecycle typically includes the following five stages:

During the contract initiation phase, the parties involved recognize the need for a contractual agreement. This could arise from factors, such as:

• A desire to establish a business relationship.

• The need for specific services.

• To keep up with compliance.

• To set clear expectations.

• To formalize an existing arrangement.

Contract initiation involves identifying the objectives, scope of work, and requirements of the contract, and determining the parties involved.

This phase of the contract lifecycle involves ironing out the contract terms and conditions, negotiating with the other party, and finalizing the agreement.

This is also the stage when document creation happens. It usually includes putting together legal documents, defining the rights, responsibilities, and obligations of each party, as well as any specific terms related to pricing, delivery, quality standards, timelines, and other relevant factors.

Defining these points now is essential for managing client expectations further down the road, especially if there are requests for out-of-scope work. Unbilled out of scope work can lead to cash flow pressure that affects long term growth. Ignition’s State of client engagement in the US report shows that accountants and bookkeepers in the United States estimate the out-of-scope work that hasn’t been fully billed for is costing their business $76,636 each year.

When you’ve included your terms and conditions, the negotiation process then begins, during which both parties discuss and potentially modify the terms to reach a mutually beneficial agreement. Once the negotiations are complete, the contract is finalized and prepared for execution.

If the contract lifecycle were a book or a movie, the execution stage would be the climax. It’s when the parties involved formally sign the contract, indicating their acceptance of the terms and their commitment to fulfilling their obligations. This step often involves the necessary contract approval process or authorizations from the appropriate individuals or departments within the organizations.

After signing, it’s essential to properly disseminate and communicate the contract terms to relevant stakeholders, such as your finance team, project manager or team leaders. This helps to establish a shared understanding of the agreement and facilitates smooth implementation.

Tracking key metrics, such as contract value, expiration dates, and renewal dates, and ensuring compliance with regulatory requirements and internal policies are met is a must.

That’s why contract monitoring is an ongoing process. It involves tracking and managing various aspects of the contract or engagement letter to ensure compliance and mitigate risks.

Contract monitoring activities can include regular performance reviews, progress reports, audits, and periodic meetings with the involved parties to address any issues or concerns that may arise.

As routine contracts approach their expiration dates, decisions need to be made regarding renewal, re-engagement or termination. During this phase, the parties review the contract's performance, assess whether the objectives were met, and evaluate the overall satisfaction with the arrangement. If both parties are content and wish to continue the relationship, the contract can be renewed, potentially with updated terms and conditions.

Alternatively, if the contract no longer serves its intended purpose, or if one party fails to fulfill their obligations, the contract may be terminated according to the agreed-upon termination clauses. Proper documentation and communication are essential throughout the renewal, re-engagement or termination process to ensure a smooth transition and minimize any potential disputes.

As you can see, effective CLM requires solid systems and contract processes to guarantee compliance and to make sure that the agreement is executed properly. This requires quite a bit of work, which is why we don’t recommend manual contract management.

Wasted time and money aren’t the only disadvantages of manual processes. There’s a laundry list of other drawbacks.

Perhaps the biggest disadvantage is that manual contract management leaves your business open to legal risk. If someone makes an error in producing your contract or engagement letter, your business could be vulnerable to disputes, legal issues, and financial penalties.

When executed manually, the quality of the contract or engagement letter is entirely dependent on how well the writer knows the law.

When manually creating contracts and engagement letters, your company may duplicate an old one to work from and either forget to update it or fail to update key portions of it. As a result, your contract may not reflect the scope of work you planned for the client signing it.

By using an old contract or engagement letter as a template, errors in the original document could be carried forward, and you also risk including outdated or non-compliant terms, which could lead to legal issues.

On the flip side of that problem, a complete lack of standardization from contract to contract (or engagement letter to engagement letter) can occur when you manually create these. This means you’re entering into totally different agreements with all of your clients, and it makes it hard to standardize workflows. It also means you’ll spend more time than necessary managing routine contracts and other repetitive tasks.

Manually managing your contracts creates a poor experience for all parties involved, as the process is slow, with little visibility for the parties who don’t currently control the contract.

Manual contract management tends to be quite slow. Specifically, there are often delays in the approval process, particularly when contracts need to be printed and mailed for signature, or when approvals require input from multiple stakeholders.

Manually executed contracts are also difficult to customize. It takes far more work than simply adding a new line item. Every change adds more time to an already lengthy process.

Now that we’ve established that manual CLM is at best cumbersome and at worst dangerous for your business, maybe it’s time to consider contract management automation.

Contract management automation refers to the use of technology and software to automate and streamline the process of creating, negotiating, approving, storing, and managing contracts throughout their lifecycle.

Software can automate specific tasks such as contract drafting, review, and approval, as well as provide advanced analytics and reporting features, making contract management a much easier task for your team.

Contract management automation has a number of distinct advantages.

Contract management automation, particularly when you use a contract management solution such as Ignition, saves your team a lot of time by automating many of the manual tasks associated with contract management, such as creating contracts or engagement letters, tracking deadlines, and managing renewals or re-engagements. In fact, over half (59%) of customers say they’ve saved time and improved efficiency since implementing Ignition.

Plain and simple, contract automation reduces the risk of human error that could open your business up to legal trouble. It ensures the contract or engagement letter you send to your client is of high quality, follows all compliance laws, and contains all the necessary contract documents.

Contract automation software that includes engagement letter templates from industry bodies, also equates to less admin work for you, so you can run your business more efficiently.

If you use contract automation such as Ignition, you can get paid for out-of-scope work by using Service Edits to make changes to the price, quantity and billing of existing services after a client has accepted your proposal. You can also re-engage your clients or renew your annual client agreements in just a few clicks to retain clients and help to future-proof your revenue.

Automating your contract management processes provides significant cost savings by streamlining your contract or engagement workflow and reducing the need for manual labor.

Contract automation that enables you to collect payment details upfront can help protect your cash flow. It can automate payment collection from the moment a client signs your proposal containing your contract or engagement letter. With Ignition for example, when any invoice is due, the platform automatically takes the payment so no one lifts a finger.

Contract management automation can facilitate collaboration by allowing all parties involved to access and share contracts in real time, regardless of their location.

Contract automation can provide real-time tracking and alerts for key milestones and deadlines, reducing the risk of oversights and enhancing overall contract and business performance.

When your proposal, contract, billing and payments are all in one platform, like it is in platforms such as Ignition, you can also start running your business on autopilot. This is because Ignition automates and optimizes not only your contracts, but your proposals, billing, payment collection and workflows – all in one platform. The result? You get paid faster and run your business smarter.

In addition to reducing the legal risks that contract errors pose, a contract management solution can help ensure compliance with legal and regulatory requirements by providing automated checks and approvals.

Businesses of all sizes and industries need a contract management system. More specifically, however, a few types of businesses or teams should certainly have automated contract management, such as professional services business, including marketing agencies, and accounting and tax professionals. Being able to create and send a proposal, contract or letter of engagement in minutes can save hours of valuable time.

Even better, a platform that automates the whole process, from proposal to payment (including client agreements, billing, payment collection and workflows) – all in one platform – can have more broader benefits for your business – it can take the hassle out of getting paid and also end late payments.

Contract automation software can do a number of things for you.

• Some platforms, such as Ignition, have proposal templates and also enable you to create a custom template. When this is signed and accepted by your client, it automatically converts it to a client agreement or engagement letter, so you’re always covered.

• Contract automation software can automate the approval process, sending notifications to all parties involved and electronically tracking approvals and signatures.

• Contract automation software can provide business intelligence dashboards with advanced analytics and reporting features, allowing users to track key metrics such as contract value, expiration dates, and renewal or re-engagement dates, and monitor performance over time.

Some contract automation can also integrate with other systems, such as accounting solutions like Quickbooks Online and Xero and connect to Zapier, allowing users to streamline workflows and increase efficiency.

There are four steps you should follow when getting started with your automated process for contracts.

First, build or select your proposal template. With Ignition, your contract terms or engagement letter forms part of your proposal to save you time. The platform also keeps a history of legally binding e-signatures for your records to help you stay compliant.

Proposal templates are a great starting point for creating new contracts. These typically include basic contract terms and conditions that are relevant to a particular type of agreement, such as a service agreement. Proposal templates not only save your team time, but also reduce the risk of errors and make sure your contracts are standardized.

In Ignition’s proposal templates library you can find pre-written proposals for over 20 industries, including professional services, marketing, accounting, and bookkeeping – or create your own.

From there you can populate with your client’s name, the scope of work, and any other details you’ve negotiated.

Just because a process is automated doesn’t mean it has to feel robotic. When implementing contract automation, you can still make sure that your firm’s branding and personality shine through by customizing the look and feel of the agreement.

That’s why it’s important to select a platform that offers robust customization capabilities. Ignition makes it easy to tailor your agreements so they align with your firm's brand identity and convey your unique style. You can also embed videos to welcome new clients or provide them with instructions.

Before sending out your contract or engagement letter, look at the steps that both you and your clients need to follow.

Are there any requirements that need completing before moving forward with the agreement? Do you require a deposit or upfront payment before signing? Iron out these steps and automate them.

For instance, if you require clients to pay a deposit, you can easily do that with Ignition. You can collect credit card and pre-authorized debit or automated clearing house (ACH) details from the moment a client signs your proposal.

This way, your clients can conveniently submit their deposit or upfront payment at the same time they review and sign the proposal and contract or engagement letter. It eliminates the need for separate payment requests, invoices, or manual follow-ups, saving time and effort for both parties.

You can start running your business on autopilot when you connect your favorite apps to create workflows that automate processes. In Ignition for example, from the moment your client signs your proposal, these automated workflows swing into action.

Using Zapier, you can connect and sync data between the platform and hundreds of other products. For example, you can automate invoicing and reconciliation by connecting Ignition and QuickBooks Online and Xero.

You can also automate your client onboarding process by creating a client intake form or questionnaire in Typeform. When the client submits your form, a workflow is triggered to create a client in Ignition. You can find out more about seamless client onboarding in this article on Client onboarding guide: 8 steps for happier clients and improved retention.

Contract management automation software can make a huge difference to the amount of time your team spends on contracts and engagement letters.

But you can really take your business to the next level and run more efficiently by using a platform like Ignition that not only optimizes agreements, but also proposals, billings payment collection. Ready to discover the difference today? Watch a demo and see Ignition’s powerful business tools in action.