Identifying Common Risks and Pitfalls in Contract Management
At the advent of business expansion, your company will inevitably face an escalating volume of contracts. This amplifies the potential for contract risk, which can impede your company's ability to sustain profitable business operations. Below is a list of the most common contractual risks that companies face:
These risks may manifest in the form of financial loss or suboptimal profitability. For instance, failing to meet a contractual deadline may result in financial penalties, thereby reducing the overall profitability of the contract.
These risks pertain to the potential challenges your company may encounter in adhering to the terms of a contract, particularly in non-standard contracts.
This encompasses possible violations of government and industry regulations, which may lead to corrective measures, substantial monetary fines, or even legal sanctions.
This may involve a potential cyberattack that results in the compromise, theft, damage, or ransom of critical data belonging to your organization. Security breaches may give rise to financial, legal, and regulatory implications that can significantly impact your company's reputation.
Brand risks are associated with matters such as employee relations, which have the potential to influence public perception of your brand and company. Negative publicity can harm your brand image and adversely affect your sales and profits, both in the immediate and long term.
Top Contract Management Software Solutions for Mitigating Contractual Risk
Establish a Standardized Process for Contract Requests and Intake
To reduce contract risk, it is essential to standardize the contract creation process, which can be effectively achieved by implementing a form-based approach for all new contract requests and information intake. Rather than allowing employees to submit ad-hoc contract requests, it is advisable to mandate that they complete a standardized form when requesting a new contract.
The form should encompass all necessary requirements to initiate the contract process, including fields for vital contract information such as goods or services contracted, deliverables and due dates, termination/renewal dates, important obligations and commitments, and other pertinent terms and conditions. Employing a form with pull-down lists for contract types and predefined fields for other key data minimizes the risk of commencing a contract with incomplete information.
Leverage Clause and Template Libraries
To streamline the contract creation process, it is recommended to use pre-designed contract templates for all new contracts instead of starting from scratch. These templates should feature standardized language and formatting to guarantee adherence to internal standards. Furthermore, it is advisable to incorporate a library of pre-approved clauses that ensure each new contract conforms to established terms. These clause and template libraries minimize the likelihood of nonstandard language and unacceptable terms.
Automate Team Workflows
Automating the contract workflow, from creation to execution, can significantly reduce risks associated with the contract process. With an automated workflow, based on established routing rules, the appropriate personnel are involved in reviewing and approving each contract, while unauthorized or unnecessary personnel are excluded. Moreover, the process is accelerated as the contract flows from one approval to the next.
According to a report by Deloitte and World Commerce & Contracting, 68% of organizations prioritize automating and digitizing contract management. While buy-side and sell-side organizations may have different automation priorities, most agree that standardizing contract data and automating the post-execution process are crucial.
Set Up Version Controls
Incorporating comprehensive version control is a crucial aspect of automating the contract workflow. With an automated process, detailed version control can be easily achieved by automatically capturing and documenting all changes made to each contract. By doing so, the risk of unwarranted, redundant, or unsuitable modifications to contract terms and language is minimized.
Initiate An Audit Trail
Automated contract management systems offer the advantage of establishing a comprehensive audit trail. A detailed audit trail is essential for evaluating contracts post-execution and in the event of an internal or external audit. Maintaining such a trail helps ensure compliance with industry and governmental regulations.
Store Contracts In A Single Repository
Storing all contracts in a centralized, digital repository further reduces risk. When contracts are scattered across various departments and locations within an organization, security is compromised, and the risk of non-standardized contracts increases. Consolidating contracts into a single repository promotes adherence to established protocols and ensures easier management and security.
Manage Access Control
To enhance contract security, it is recommended to implement role-based permissions. By doing so, only authorized individuals can access specific contracts, reducing the possibility of breach points and preventing the leakage of proprietary information.
Requiring electronic signatures from contract signatories can provide an added layer of risk mitigation. Electronic signatures not only streamline the execution process but also enhance security by reducing the risk of forgery or hacking. We go in-depth about electronic signatures and distinguish them from digital signatures in this blog article.
Institute A Notifications System
Automated notifications about upcoming deliverables can significantly reduce the risk of missing deadlines or contractual partners failing to meet their obligations after contract execution. By automating this process, you can ensure that all parties are aware of their responsibilities and have ample time to fulfill them. This helps to minimize the risk of legal disputes and breaches of contracts, ultimately saving time and resources for your organization.
Generate Data-Driven Reports and Analytics
Tracking the entire contract process through detailed reports and analytics is a crucial step in reducing contract risk. In addition to monitoring in-progress contracts, evaluating the performance of all executed contracts against expectations is essential. By gathering comprehensive data on contract performance and process, you can make informed decisions about future contracts and improve overall efficiency.
Alleviate Contract Risk With Lexagle.
By choosing the right contract management solution, you can easily implement risk-management strategies to safeguard your organization from potential contract risks. Lexagle's contract management platform provides a comprehensive solution that automates and streamlines the entire contract process, mitigating all common types of contract risk.
With a centralized digital contract repository, template and clause libraries, e-signatures, and advanced reporting and analytics, Lexagle offers a complete suite of features that reduce the risk of underperformance and non-compliance. This solution empowers organizations to efficiently manage their contracts with ease and confidence while ensuring compliance with internal policies and external regulations. Discover our innovative features by booking a free demo with us today.