CEO of Agiloft.
Every successful organization recognizes the value in effectively managing each contract it signs. Enterprises spend significant time and money and seek professional advice to ensure drafted contracts satisfy business and regulatory requirements. Yet, unfortunately, organizations across the globe still make serious errors throughout the subsequent life cycle of a contract.
The impact of contract mismanagement can range from inconvenient to catastrophic. At the extreme end of the scale, oversights and errors can result in serious cost overruns, negative impact on customer relationships, reputational damage and even protracted legal action. The potential pitfalls only reinforce the need to deliver an integrated process that ensures contracts perform as intended.
However, although decisions made throughout the contract life cycle are often made “in good faith,” they can end up costing millions. And the contract management process might fail to get the best value because of two main reasons: “potential damage to the relationship with the supplier, and delay to the project schedule.”
Whatever the cause or effect, there’s pressure on contract management stakeholders to improve standards — and, as a result, business outcomes — with technology set to play an increasingly important role. For instance, the results of research by World Commerce & Contracting, a not-for-profit organization promoting standards to support successful contracts and commercial relationships, show that 84% of its members have experienced pressure for contract simplification. Nearly two-thirds (65%) are focusing on improved communication, and 81% said they have plans to implement contract automation.
To meet these goals, some businesses have implemented contract life cycle management (CLM), which has been defined as “a solution and process for managing the life cycle of contracts created and/or administered by or impacting the company. These include third-party contracts … and agreements containing contractual obligations.” CLM solution providers focus their offerings on helping organizations address a variety of objectives and deliverables. These range from managing and mitigating risk, improving workflows and meeting compliance obligations to focusing on cybersecurity and accelerating the processes at the heart of contract review and execution.
Practice Contract Management To Reduce Revenue Leakage
In addition to using contracts for keeping a record of business relationships, teams are employing CLM to manage important obligations such as deadlines, payment penalties and more. This explains why contract management should be a critical area of focus throughout the organization. If teams don’t have the right tools to track and manage legal obligations, revenue could slip through the cracks. In fact, the average company loses 9% of annual revenue due to poor contract management practices.
There are several pitfalls that organizations may face if they don’t prioritize contract management. Without it, there might be little to no visibility into enterprise-wide contracts that were already negotiated. Plus, it can be difficult to track available rebates and discounts and monitor contracted price compliance. These factors have a direct financial impact on the business and should be monitored in real time to prevent unnecessary losses.
Ensure Your CLM Approach Evolves With The Business
Covid-19 greatly accelerated digital transformation, requiring enterprises to change rapidly to adapt, and there’s little sign of going back to a pre-pandemic way of doing business. To adjust accordingly, enterprise decision makers must adopt an agile and configurable technology approach as the business expands and evolves over the years to come.
As a company changes due to growth, new business initiatives, new competitive situations or new regulations, its technology systems and contracting process must be tailored to the evolving needs of the business. Rather than staying locked into traditional processes with legacy technology, contracting teams must continuously scale at the pace that their business grows. That’s why organizations have begun to see CLM as no longer just for legal teams — it’s now enterprise tech that connects legal to the rest of the enterprise.