Legal Process Outsourcing
Blockchain in a CLM: A new era of contract security and transparency
Data shows that 55 - 70% of businesses do not have an efficient contract management system. While this may not seem like a big problem, contract disputes make up 64% of legal battles in US state courts. Businesses must know the whereabouts of each contract, their history, and the terms of the agreement. It should be easy to fetch any clause within minutes, if necessary.
A blockchain-enabled Contract Lifecycle Management (CLM) system helps manage contracts at all ends, including the buyer, seller, and legal teams. With policy-driven workflows, a quick approval process, and standard template libraries, a CLM cuts administrative expenses by up to 30% and saves businesses from possible litigations.
This article explains the role of blockchain in contract management and its importance in security and transparency.
Role of Blockchain in CLM
Blockchain technology provides a secure and decentralised database for faster, more efficient, and safer contract management for businesses and legal professionals. It reduces the risk of fraud and errors, thanks to the transparent and auditable contract trail, compliances, and renewals.
Blockchain for contract security and transparency
Some of the critical activities of CLM are the initial discussion, authoring of the draft, negotiation, execution, enforcement, and renewal. Businesses and their legal teams must manage each of these stages with an audit trail while reducing the overall time spent on getting the client onboard.
Here are the reasons to choose blockchain contract management technology.
Smart contracts
Convert paper or PDF contracts into digital copies that all the parties can view, edit, and comment on in real time. The smart contract is built directly into the code with legal codes like paper contracts.
Developers set a smart contract that is put into action once all parties agree to the terms, making it official. The code manages all changes and transactions, such as loans that one party may have taken from the other, interest rates, and the repayment schedule. You can also add conditional triggers that act and inform all the parties once a requirement is met.
Remove intermediaries
46% of contract management leaders feel that the manual process with intermediaries is difficult and time-consuming.
Smart contracts can be directly executed between the two parties without intermediaries. You save the fee paid to mediators and involve as many parties as necessary in the discussion. This lowers the waiting and execution time and the cost of the contract and lowers the chances of manipulation.
Accurate and verifiable contracts
A blockchain contract management system ensures accurate and verifiable information within the contract. All parties can check and verify the information simultaneously, and only those with the right authority can make changes.
Cost efficient
Smart contracts make the process automated, thus increasing the efficiency and reducing the cost. Without mediators and the need for manual approvals and costly delays, blockchain contract management systems make the cost to the company lower.
According to a global consulting and research firm, businesses may save 2% of their annual expenditure with the help of blockchain CLM systems.
Greater security
Poor contract management with inadequate security accounts for over 92% of revenue loss for businesses.
Blockchain in contract management uses advanced cryptography to ensure security. Developers can focus on and develop smart contracts that suit the requirements of the business. With cryptography, CMS and blockchain work together to provide a secure solution where peer calculations verify a transaction.
Instant and automated actions
Blockchain contract management systems do not wait for mediators to manually review and forward the contract to other parties. The technology keeps a record of every action and uses it as a reference to validate and approve instantly. Once the pre-conditions coded into the system are met, the transaction executes automatically.
A study predicts that AI-enabled CLM systems will make the negotiation cycle faster and cut manual work by 50% by 2024.
Automatic contract management
Once the parties agree on the terms and conditions, the contract can execute itself without manual intervention. This reduces the time and effort of contract managers in writing and executing complex contracts with large financial stakes.
Greater transparency
Blockchain technology ensures security, immutability, and transparency. The transparency at the entry level assures all parties that the process runs smoothly and unambiguously.
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How can Infosys BPM help?
The next-generation Contract Lifecycle Management software by Infosys BPM takes a centralised approach with complete visibility for all the stakeholders. It enforces compliance, manages obligations, leverages volume discounts, and reduces risks and chances of litigation.
Read more about the CLM software by Infosys BPM.
