Contract Cycle Times and Their Impact on the Sales Process
by Dermot Whittaker on January 24, 2019
All contracts go through a cycle from request to creation, approval, negotiation, signature and onboarding (or put-away). From there the cycle continues as the contract is managed, goods/services are delivered, payment is made, and, at last, contracts are renewed or terminated.
Each stage of this contract lifecycle takes time, contributing to the total contract cycle time. Since time at any organization is limited, contract cycle time affects contract volume, contract value, or contract quality. Ultimately, contract cycle time affects the bottom line.
For sales contracts, a crucial cycle time is between request (when sales signals it needs a contract to close a deal) and onboarding (when the signed contract is entered into company records). Since closed deals represent business for the company, they are usually measured in fiscal quarters. Delays in the sales contract cycle keep deals from being recognized in a given quarter, pushing them to the next quarter, producing lower sales numbers that reflect an inefficient process. Delays that hamper otherwise productive sales personnel can affect the number of contracts that they can drive to completion in a given quarter as well as the contracts’ total value.
To be sure, the sales cycle itself includes many activities separate from the contract: prospecting, educating and learning from a lead, presenting and bidding goods and services. That said, contract cycle time is a good metric to use to see where sales contract processes can be improved and thus increase deals concluded and revenue achieved.
So, where can delays contribute to a longer sales contract cycle time?
When sales persons are ready to conclude a deal, they need a contract. At this point, delay can occur for any of the following reasons:
- It is not clear who to ask for a particular contract.
- It is not clear which contract to request.
- The information needed from sales to create the contract is not provided or is provided incompletely.
- The person who fulfills contract requests from sales has limited time.
What You Can Do: Making sure that products and services are aligned with the appropriate contracts is a good starting point. Beyond simple description of the deliverables, this means providing terms and conditions appropriate to the delivery, costs, and financial commitment. You can then determine what specific details are needed from sales to deliver the right contract. The contract manager or legal professionals who manage the contracts will have approved versions in place and can complete and return them to sales more quickly.
What Automation Can Do: With the right contracts in place, a self-service contract request form can walk a salesperson through the requisite questions to lead to a completed electronic contract in minutes with no other human approvals needed. This leaves contract managers and legal free to deal with requests for more unusual or high-risk contracts. In cases where the sale is non-standard and departs from the standard templates, the information that sales provides in a contract request form can get a multi-stage approval process started.
Review and Approval
In some sales processes, the contract must be reviewed and approved internally by legal, finance, and a member of the executive team. This review and approval can lengthen contract cycle time in several ways:
- The approvals needed vary by contract, dollar commitment, etc., making the approval path for a given contract unclear
- The reviewers have many other commitments and back-burner the approval request
- The routing of the contract from one reviewer to another is handled manually by a contract manager with competing responsibilities
What You Can Do: Clearly outlining the approval requirements and workflow for contracts of a given type will provide clarity for the person whose job it is to route the contract. Use of standard language and control over contract templates can reduce the need for review by more senior staff members; sometimes an approval is simply a superfluous check to see the right language was deployed in the first place. Unfortunately, when a business is thriving, the risk of multitasking falls on approvers and reminders equally, and delays can happen when a review task is postponed or forgotten.
What Automation Can Do: Automated approval workflows for each contract type contain all information needed to route a contract to the appropriate approvers, in whatever order. Required approvals can change dynamically in response to changes in a contract. For example, if the dollar value of a sale reaches a threshold amount, additional approvals can be required by the system. Importantly, email reminders and escalations can keep the review and approval task in front of individuals, who can access the contract electronically, complete their work, and move on. A system such as this can shorten approval time, and thus sales contract cycle time, while ensuring proper oversight.
Signature and Onboarding
Once a contract’s terms are agreed to, getting it signed is a simple but essential step. It can also be a slow step for the following reasons:
- Preparing a contract for signature may still require manual compilation of final changes in the draft.
- Mailing or overnighting a hard copy for wet signature takes administrative time and depends external factors.
- Getting a hard copy signed and returned from a counterparty may necessitate one or more reminders.
And while the signed contract may feel like the end of the process, getting the contract into a repository and Line of Business system will be required for it to count toward a company’s sales quota or a revenue projection. A slow onboarding process will lengthen the sales cycle. This can happen because
- The administrator in charge of entering the contract record and details has competing responsibilities.
- The administrator needs to re-enter counterparty and contract information from the contract itself into another business systems.
- The administrator needs to scan, OCR, or create a data record for the final paper contract with signatures.
What You Can Do: Using e-signature as a standalone service will subtract days from the time it takes to get a contract signed. It is common for a turnaround of days to be shortened to a matter of minutes as the process is handled by email. The more you can do to standardize the onboarding process, the better. Besides setting up a central repository for the electronically signed contracts, a checklist of required steps for getting the contract recorded in your business systems will make sure that sales, service delivery, the warehouse, and finance are each aware of the sale and are ready to deliver and collect payment.
What Automation Can Do: A contract management system eliminates most of the manual activity around signature. The final contract language will already be in place, ready to be emailed to the counterparty. Integration with e-signature allows to a contract management system to trigger workflows based on whether the contract has been signed and returned or not. Auto-reminders and escalations get a signed contract returned quickly. With the contract’s return, it can be automatically placed in a repository and follow up tasks created so the deliverables and invoicing happen on time. Most important to sales, automatic onboarding means the sale is recognized for the quarter almost as soon as it is signed. This reduces cycle time at the point sales teams most value – counting the deal as concluded.
As noted above, there can room for improvement in many parts of a sales cycle and the resulting delivery obligations. The contract lifecycle is one such area, and contract cycle times are a useful metric. It is also a metric that is easily obtained once contract requests, creation, approval, etc., are in an automated workflow. Contract management systems can report on contract cycle times measured from any start and end point. These reports isolate portions of the contract cycle where delays may be occurring and can be addressed.
By measuring contract cycle times an organization can set goals for greater efficiency in a process it largely controls, management of its contracts.