Mitigating Contract Risk Using Contract Management Software
In a rush to grow, organizations are looking for ways to scale operations while adequately mitigating contract risk and contract management software holds the key. In an accelerating business world where every agreement can affect daily operations, getting the requisite legal input during your contract lifecycle is an essential part of your commercial, procurement, and sales processes.
The risks involved during rapid stages of growth require dedicated resources who can vet agreements before final approval and execution. Contract management software allows in-house legal teams with an opportunity to modernize the way they provide these essential services to the rest of the organization within an expanding commercial horizon. According to Deloitte’s 2020 Legal Operations Survey, most organizations are yet to realize the full potential that digital transformation has to offer businesses. Contract management software can play a foundational role in any digital transformation strategy.
Today’s business world requires in-house lawyers to take a more proactive role in all aspects of the business. Legal teams will help transform functions, provide critical business intelligence, and find ways to mitigate contract risks in all agreements required by your different BUs.
How Today’s Contract Management Software Helps Mitigate Contract Risk
Broadly defined, risks refer to any contingency you need to anticipate and mitigate to prevent losses, damages, or harm from occurring. In business, these may include a wide variety of agreements, terms, standard clauses, or any other legal documents the company issues to clarify technical requirements between vendors, suppliers, or service providers. Most organizations have formal policies in place that govern the way you identify, assess, and mitigate specific risks spanning across all different functions in the enterprise.
Although most legal departments focus on mitigating risks, more and more organizations will expect these teams to play an increasingly strategic role in business decisions going forward. A growing dependency for legal resources to draft new agreements that keep up with growth cycles and aligns with the wider business strategy will require automation and standardization capabilities that streamlines the entire contracting lifecycle. With contract management software, legal resources can be freed up by automating routine tasks and enabling them to focus on strategic activities like risk management.
In this blog, we’ll cover some of the major ways that contract management software helps you with mitigating contract risk in your business.
Understanding the Different Types of Contract Risks and Exposure
At its core, contract management is the discipline you use to identify, assess, and mitigate risks such as legal, financial, security, and brand risks between contracted parties. The language used in your different clauses implies specific responsibilities and sets clear boundaries for everyone involved in the agreement. Regardless of the contracting model you currently use, you’ll likely have to assume some of the amounts of risk in any agreement.
Contract management software allows you to standardize the language you use in different agreements and ensure your exposure remains acceptable when signing a new contract. You can create preapproved clause libraries that cover all contingencies and associate these with different contract templates. Once you have the correct language in place, the effort required to draft, review, negotiate and approve new agreements won’t overburden your legal department and allow you to grow the business as required. Cloud-based contract lifecycle management (CLM) software allows you to accelerate growth while managing risks effectively.
Learning From Past Experiences and Contractual Performance
Maintaining growth while actively mitigating contract risk during every cycle depends on a platform that controls your agreements, informs you about past performance, automatically alerts you about upcoming deadlines and obligations, and helps you understand the impact of any future business decisions. Contract management software generates useful analytics that allows you to benchmark and track KPIs to make continuous data-driven improvements in your daily operations or expansion projects. It also triggers automated alerts and reminders to ensure important dates and deadlines aren’t missed.
You can track negotiations, investigate the different iterations of your draft agreements, measure your time to approval, and track post-award execution for every contract. A centralized repository for all agreements, communications, reference documents, and scheduled workflows provides you with the kind of data you need to grow your business successfully. You can track contract stages, drill down into specific details, revise language as required, and evaluate vendor performance in real-time. Cloud CLM gives you exact information about your risk exposure and enables you to make informed decisions about how to mitigate them now and in the future.
Staying Ahead of the Governance and Compliance Curve
Taking a proactive approach to governance and compliance requirements is vital to staying ahead of the legislative curve. Changes to rules that govern KYC and AML or other cross-border agreements aim to help protect international organizations from signing deals with questionable foreign operators. While these create liability risks, you can indemnify your company from similar situations if you proactively seek out and adjust the language used in your agreements.
A centrally controlled, curated, and comprehensive repository of clauses will transfer the risk to any organization that may compromise your compliance tasks. You can ensure you carry out all necessary due diligence during the vetting and negotiation stages, keep records of compliance documents, and easily revise your language to match the requirements of new rules. A single, controlled, secured, curated, and comprehensive repository of your contracts gives your team the ability to stay ahead of any new laws or regulations, including financial reporting requirements.
Maintaining adequate information security on all confidential, financial, and medical information is only one aspect CLOs need to consider. While these events can lead to reputational damage and other liabilities, everything from missed deadlines to substandard products can put organizations at risk. Mitigating these scenarios requires clear planning and proactive engagement with suppliers, vendors, and in-house legal teams. Using a cloud-based contract management system allows all the stakeholders to stay up to date while you limit access to information for only those resources authorized to know. Risk management requires a set of comprehensive controls during every stage of your CLM.
Using Cloud CLM from Contract Logix to Mitigate Your Commercial Risks
Each type of agreement your business signs carries a certain amount of risk that you need to track, manage, and limit during your daily operations. Contract Logix provides you with an integrated platform that spans your entire contract lifecycle management and streamlines the process of identifying, assessing, and mitigating contract risk during your contracting processes.
You can use Contract Logix to establish a robust contracting model that covers all your exposure, ensure your compliance, and enforce specific requirements on any of your business associates. Contract Logix allows your staff to access all their work from any device, make the necessary changes, and collaborate quickly to ensure you clarify and understand any of the applicable terms and conditions.
For organizations that need complete oversight over their risk management and contracting processes, Contract Logix is the ideal CLM platform that can cover all of your different contracting stages.
To discover new risk management and mitigation capabilities with modern and efficient contract management software, request a demo from Contract Logix today.