How Digital Contracting Software Boosts Risk Mitigation
Contracts are essential to the running of every business yet are also inherently risky. In this post, you’ll learn how to mitigate contract risk with contract lifecycle management software, also referred to as digital contracting software.
While you can’t completely eliminate contract risk, you can minimize it substantially by using digital contracting software, such as Contract Logix.
Key Takeaways
- Common contract risks include unprofitable terms, not knowing contract contents, missed deadlines, noncompliance, and lost or misplaced contracts
- Digital contracting software can mitigate these risks
- Digital contracting software standardizes the creation of contracts, automates the contract workflow, centralizes contract storage, and makes it easier to find and track contract-related information and obligations
Read on to learn more.
Common Contract Risks
Every contract carries with it some degree of risk. Contract risk can be contained within the contract itself or introduced in the contract management process. Here are some of the more common contract risks you are likely to encounter in your organization.
Unfair or Unprofitable Terms
When a contract is negotiated and executed without proper oversight, you can end up tied to an unfair or even unprofitable agreement to your business. A poorly written and vetted contract can not only cost you money but also open your firm up to legal action. (The following video discusses unfair contract terms and their consequences.)
Not Knowing Contract Contents
One of the biggest risks in any contract is not knowing everything within it. This could subject your organization to obligations you might not approve of or even be aware of. This lack of visibility into contract contents can result in potentially harmful terms and clauses gaining tacit approval.
Missed Obligations
This lack of complete visibility can manifest itself in missing important contract obligations such as renewal or other deadlines or commitments. If the right department in your organization isn’t aware of an obligation, it can’t meet it. Missing obligations and deadlines can subject your organization to unnecessary penalties and even legal action.
Missed Opportunities
When a contract nears its expiration, you may have the option to renegotiate the contract on better terms. However, if you don’t know when the contract is up, you can’t take advantage of this opportunity – another potential impact of not being aware of a contract’s contents. In addition, perhaps you have a contract with a supplier that offers greater discounts once you hit certain volumes. If you aren’t tracking those terms, then you miss the opportunity to take advantage of the lower prices.
Noncompliance
You need the right individuals and departments to review all your contracts in depth. A contract might set your firm up for noncompliance with significant internal, industry, and governmental regulations if this doesn’t happen. This is particularly important in heavily regulated industries such as financial services, pharmaceutical, and healthcare. Noncompliance can result in hefty fines, business disruption, and loss of revenue and reputation.
According to a GlobalScape report, the average cost of not complying with data protection regulations is close to $15 million per violation.
Breached Contracts
The risk of you or the other party breaching a contract will always exist, but gets higher if contract contents are not fully visible throughout the organization. Breached contracts can cost your company money and reputation – and resulting disputes can lead to legal action.
Misplaced or Lost Contracts
Do you know where every contract is in your organization? Contracts can get lost in the initial process itself and be misfiled or poorly stored after execution. This is a problem if you enable individual departments or locations to manage their contracts rather than storing them in a central location.
Unauthorized Access
Finally, consider who in your organization has access to the sensitive data contained in your contracts. Inadequate security can result in the wrong people gaining access to information they shouldn’t have access to – and then leaking it to competitors or the companies you’re negotiating with.
How Digital Contracting Software Reduces Contract Risk
One of the most effective ways to mitigate contract risk is to use digital contracting software, also known as a contract management system (CMS) and contract lifecycle management (CLM) solution. Contract management enables tighter control of and visibility into all the contracts your organization handles. This type of solution reduces contract risk, improves efficiency and productivity, and reduces errors and costs.
Here are just some of the ways that digital contracting software boosts risk mitigation in your contracts.
Standardizes Contract Creation
Digital contracting software helps standardize the contracts your firm creates, which helps to eliminate unapproved, unprofitable, and non-compliant terms and conditions. Most digital contracting software solutions provide clause and template libraries where you can populate preapproved terms and language that make it difficult, if not impossible, for rogue language to make its way into your final contracts. You can also apply conditional business rules so that certain language is always used in certain situations.
Automates Contract Workflow
Digital contracting software automates the entire contract lifecycle. Everything is done electronically, so there’s no paperwork to get lost between offices. Every step in the process is automated, so contracts are always routed to the right parties at the right time. This speeds up the entire process, eliminates errors, and ensures that nothing falls between the cracks. According to a classic study by Aberdeen Research, it also significantly reduces your costs – up to 30%.
Centralizes Contract Storage
When you embrace digital contracting software, you say goodbye to lost or missing contracts. Every contract and supporting document is digitized or created in electronic format, and those files are stored digitally in a centralized contract repository. This allows you to harness all that valuable data in your legal agreements to report, analyze, and leverage for actionable insights. And, since the repository is based in the cloud using secure providers such as Microsoft Azure, it’s easier to access by remote users.
Secures Contract Access
This centralized data storage is considerably more secure than old-school physical storage. Access to electronic contracts can be assigned on a need-to-know basis, prohibiting unauthorized users from seeing confidential information. You can establish role-based and feature-based permissions, implement the appropriate authentication settings, and some solutions like Contract Logix have SOC 2 Type II, PCI, FISMA, and HIPAA compliance.
Enables Easier and More Effective Searches
A centralized contract repository also makes it easier to find specific contracts and information within those contracts. Advanced search functionality enables searching on key terms or fields, which increases the visibility of all contract contents. You will be able to easily locate legal language, search by vendor, contract type, or any other data point in your contracts.
Automatically Generates Reminders and Notifications
Digitizing contract contents also enables automatic notification and reminders about essential contract obligations and events. Key personnel will then be automatically notified when a deadline is approaching, which mitigates the risk of missed deliverables and contract breaches.
Let Contract Logix Mitigate Your Company’s Contract Risk
When you want to boost risk mitigation, turn to the experts at Contract Logix. Our digital contracting software solutions automate all the steps of the contract lifecycle, reducing or eliminating most common forms of contract risk. You’ll also realize the benefits of streamlined workflow, improved accuracy, and lower costs.
Contact Contract Logix today to learn more about mitigating contract risk.