Beware that contracts do not overwhelm a company’s management capacity
By Norman Kretzmer, the founder and Chief Executive of Contract Understanding.
Every business depends on a web of relationships with numerous suppliers, service providers, advisors, clients, business partners, employees, shareholders, and other stakeholders to carry out its operations. In turn, the conditions, benefits, and responsibilities attached to each of these relationships are set out in legal contracts that range from brief and simple to long and convoluted.
Depending on the size of a business, it may have hundreds, or even thousands of active contracts in force at any time. These contracts, some digitised, some not, may be stored across numerous physical and virtual locations, with no single view of the contents of these contracts.
This has emerged as a major pain point for companies, especially those that are big enough to have signed hundreds of contracts, yet not large enough to be able to afford some of the more expensive and complex contract lifecycle management software currently available to the market. The result? They face a range of post-signature contract management pain points including:
1. Lack of visibility into contracts signed:
One of the most common challenges companies face with post-signature contracts is that they simply don’t know which contracts are in force and who holds internal responsibility for them, let alone what the terms and conditions of each contract are, which changes and amendments have been made to the original, or who the contact people are on the counterparty’s side. In some organisations, invisible contracts have proliferated, with the accounts team paying the bills each month but no wider awareness of the associated terms and conditions, obligations, rights, deadlines or risk profile.
2. Missed deadlines:
Term-based contracts generally come up for renewal, renegotiation or cancellation at specific intervals. If a company misses this window, the contract might be automatically cancelled or renewed. As a result, a company could see its broadband contract renewed for 12 or 24 months when it intended to cancel or negotiate a better deal for example. Or a business-critical service such as monthly inventory delivery could be unexpectedly cancelled because no one was alerted to renew the contract.
3. Unnecessary penalties and lost benefits:
Some of the most important detail in a contract concerns the benefits and obligations it sets out for each party. These details can easily be lost in the small print of a lengthy contract, especially if finance and procurement teams are managing hundreds of contracts and counterparties. For example, a company might need to pay a penalty or lose a discount for not meeting its payment deadlines to a supplier. Or it could miss out on supplier incentives and discounts because it is not aware of them.
4. Manual workflows:
Post-signature contract management typically involves a range of time-draining, admin-intensive tasks related to events such as renewals, terminations, price escalations, breaches and so on. These tasks can slow a business down, introduce human error into processes, and use up time that employees could be directing towards more value-adding activities.
5. Controlling access to privileged information:
When contracts are stored in a haphazard way with no centralised controls, it becomes significantly harder to ensure the confidentiality and privacy of sensitive contracts. There is no consistent way to manage user access to stored information or assign limited access to designated users for highly confidential contracts.
Unlocking the value of your contracts beyond signature:
The legal contracts a company has signed have a significant bearing on its finances, operations, and risks. Yet most companies are not managing post-signature contracts in a strategic manner. According to KPMG, this oversight means that organisations are missing out on 40% of the identified potential of their contracts.
However, cloud-based technology that enables companies to securely and efficiently store, organise and manage post-signature contracts has become increasingly accessible over the past few years. Such solutions analyse and extract key data from contracts, offering complete visibility into every contract a company manages.
This enables companies to improve management of their post-signature contracts, make better decisions, meet deadlines and obligations, and ensure that they are receiving the full benefits due to them. It all begins with a simple subscription to a Software as a Service (SaaS) solution – a compelling strategy to unlock untapped value within any business.