Contract management is now considered to span from the legal team to the finance team.
An unseen shift is happening in business today: contract management is being handled by finance instead of legal. Not only is the company’s structure shifting—it’s transforming how the business functions, decides matters, and manages various resources.
The Broken Contract System
In the past, handling contracts involved tired nights, hours in front of file cabinets, lots of Excel sheets, and several conversations by email. Surprisingly, the story took place in my hometown. In the 1980s this wasn’t the case, but it continued to happen well into the 2000s.
Currently, contracts are drafted by the legal team and then forgotten until someone needs them for an argument or a renewal.
The process of managing contracts has been recognized to be broken for a long time. However, it’s starting to change now.
Why Finance Is Taking the Lead
Information supplied by the survey suggests that around 70% of today’s companies contract out their legal work. Contracts are now a part of what CFOs should manage.
This move makes logical sense when you consider the purpose of contracts:
1. The contracts you sign with others influence your company’s cash flow.
2. They explain what each party must pay, when it should be paid, and when the payments are due.
3. There are financial risks and new opportunities found in their wording, such as periodic changes and demanding obligations.
If you look at it this way, contracts turn out to be financial tools dressed in lawful vocabulary. Legal departments should not be in charge of owning the licenses; finance should.
AI: The Great Democratizer
Thanks to technology, this change has come more quickly. Using modern AI software for contract management, you aren’t required to be a lawyer to understand your agreements.
AI is capable of doing things instantly:
- - Underline or highlight sentences that are unclear.
- - Mark down expenses for all areas of life.
- - Pay attention to the schedule for renewing your certifications.
- - Look for terms that are not commonly used in English.
This means that because most business contracts are standard, they rarely require expert legal review. According to data, almost 90% of contracts never need to be adjusted or renegotiated.
The New Role of CFOs
Like CIOs, some CFOs are becoming strategic business leaders rather than only being responsible for the finances. Contract management has made them more than accountants, allowing them to help businesses gain a competitive edge.
Today, many CFOs rely on contract analytics to:
- - Forecast plausibly with the commitments included in the agreements.
- Understand and identify factors that slow down your ability to recognize revenue.
- - Remind you weeks in advance to avoid anything unexpected.
- - Oversee the handling of financial matters in many transaction data.
- - Identify situations where savings and reduction of expenses are possible.
This is based on real life, and thousands of companies that have automated their contract processes are seeing similar results.
What's Happening to Legal?
Legal is not disappearing; it is simply developing further. Good legal teams are focusing less on managing contracts every day and more on planning and strategy.
- - Giving input on significant negotiations
- - Using templates that safeguard the company from risks
- - Dealing with regulations in the industry
- - Managing difficult conflicts
- - Giving direction to senior management.
By 2035, the majority of businesses with less than 500 workers are expected to take legal out of typical contract management. It is happening already, as 67% of legal departments are choosing to use contract management software instead of hiring lawyers.
The Future of Contracts
Would an AI create lengthy legal documents based on its own knowledge? Most likely not.
It is obvious where contracts are headed.
Highlights of tasks and actions are easy to spot using an interactive interface.
- — Summaries of the most important commitments
- - Systems with the ability to track and improve their results
- - Information on when your registration will be renewed
- - Connection to financial and accounting systems
Contract management is shifting its focus from managing documents to managing relationships. Firms shifting to this approach are improving their day-to-day efficiency and controlling their finances.
What This Means For Your Business
If your team depends on legal for making each contract change, you are operating below the competition. Meanwhile, others are bypassing this challenge by using the latest approaches to contract management.
Ask yourself:
- - Is it possible to find any contract quickly?
- Is it easy for you to know exactly when your software licenses are set to be renewed?
- Is the way you generate contracts standardized and done through automation?
- - Does your team know the worth of the contracts scheduled to renew in the next quarter?
Should your answer to any of these be “no,” it’s high time to modernize your methods. New contract management software can help you change your processes much faster, usually in days only, rather than taking many months.
The Big Picture
A contract is mainly a guide for a healthy relationship, not a legal file. With this interpretation, it becomes clear why Finance should be in charge of them.
Transferring contract management responsibilities from legal to finance means businesses are rethinking their operations, not only making an organizational change. Contrary to legal documents, contracts should be managed as key players in finances.
Those that adopt this new approach enjoy:
- - Rapid decision-making on sales.
- - More transparent accounts
- - Lower expenses for running the business
- Better planning when using attorneys and lawyers
- – Better dealings with outside vendors
In short, contract management today represents a win for your business by allowing it to work more quickly, efficiently, and economically. Recognizing this, the best CFOs also add to the company’s revenue.
