Lawyers Can Hurt, or Help, Sales Contracting: Meddling in Drafting Tactics Can Sabotage Good Business Strategy


The Point

1. A good business strategy: Accelerate revenue by making the order-to-cash cycle as short as prudently possible.

2. Tactically:

(1) Have lawyers draft pre-approved risk protection terms for sales contract templates before any discussions with customer,

(2) Agree in advance on the terms of all other standard risk protocols among lawyers, business unit management, and all other relevant corporate functions — again, before any discussions with the customer have taken place.

(3) Give your business unit head the authority to sign (i.e., no additional legal or other review required) if either (a) all prescribed terms of risk protocols have been met, or (b) he / she has approved any deviations from standard risk protocols that are within his / her authority to waive. Only if proposed deviations go outside those allowed by standard risk protocols should your lawyers be brought in as a condition for approval / disapproval.

3. Too many lawyers favor meddling as a matter of course — via last-minute contract mark-ups made while “running it by Legal” in mother-may-I fashion — rather than delegating their approval via protocols that sales people can implement themselves.

4. Protect your order-to-cash strategy by having your attorneys do their job in advance to the extent possible — to avoid such meddling and consequent choke points.

This Matters to Your Business

Consider this situation for a member of your sales team who is diligently doing his / her job of bringing in revenue to meet the quarter’s targeted number:

“You’re feeling pretty good about the state of your contracts. Excited even. Legal and Sales are on the same page, you’re crushing deals left and right, and everyone seems happy. And wow, now that $1 million enterprise sales deal looks like it’s about ready to close ….

“But wait, the counterparty [legalese for “customer”] came back with a small, but material change to the terms. ‘No problem,’ you think. ‘I’ll just re-route the contract through legal, and we’ll be good to go.’ There are still – checks watch – 11 hours before the end of the quarter. That’s plenty of time, right?

“This contract horror story is way too familiar – and we all know how it usually ends … Ensuring you have the right context to make quick decisions is paramount to getting last-minute deals signed on the last day of the quarter.”

This from Toby Schumacher, Director of Business Development at Ironclad, whose software system provides enterprise-level contract lifecycle management, or CLM. (Contract Horror Stories: The End of Quarter Cruncher, October 24, 2022.)

Because …

Whether or not your company uses CLM technology, it requires a workable process-based system to ensure that its sales people get “the right context to make quick decisions” in contracting.

And simply making sure your sales people just “run it by Legal” is a formula for choke points, delay, and probably lost sales — not quick decisions.

As an executive, I found that lawyers, especially those in-house, resisted explaining the logic behind their advice in a way that informed strategy for the business person’s future actions. Instead, they insisted on tactical intervention that took place only after the commercial people had finished their work:

“Show me what you’ve agreed with the customer, and I’ll tell you if it’s OK”.

Letting your company’s lawyers do this to the contracting process leads to bottlenecks, needless impediments to closing, and lost revenues.

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