9 risks of bad contract management (that you can’t afford)

As daunting and unpredictable as contract management might be, it’s far too important a business function to ignore. 

When it comes to contracting, I’m stressed out – worried I’ll miss something or make a wrong call due to unforeseen events. Risk is everywhere, and it’s my job to detect and mitigate it. Yet I don’t feel like I have the needed visibility into my contracting process or contract data to make sure something doesn’t slip through the cracks. 

Plus, my job demands that I collaborate across departments, responding to urgent requests and providing contract information to people when they need it. I feel like I’m always chasing down answers and doing repetitive, mundane tasks when I really want a meaningful job where I can make a bigger impact. 

Is this you? 

In today’s face-paced business world, it’s understandable if you feel overwhelmed, powerless, or even burnt out when it comes to managing contracting, especially when it is impacted by unpredictable events due to macroeconomic shifts, global pandemics, or global conflicts. But as daunting and unpredictable as contract management might be, it’s far too important a business function to ignore. 

The importance of contract management

Contracts are the backbone of businesses across the globe. In fact, more than 26% of the workforce has some level of involvement in the contracting process. 

The future of contract management is rapidly changing. Contracting is more centralized and more likely to be undertaken by dedicated professionals than it was five years ago – and for good reason. According to World CC research, good contract management can save up to 9% of a company’s annual revenue.   

But how do companies properly manage their contacts? 

Luckily, contract lifecycle management (CLM) software can help. With CLM, you can create order out of chaos, take control, respond to change in your organization, and identify and prevent risks before they happen. 

CLM manages all aspects of a contract or legal agreement from creation to negotiation all the way through execution. At its most basic level, a CLM system provides a single digital repository where organizations can store all their legal documents, whereas sophisticated CLM systems use artificial intelligence to import contracts, analyze the language in them, flag risks, manage contractual obligations, and more. 

Just about every organization runs on contracts. In fact, PricewaterhouseCoopers says the average enterprise maintains 20,000 to 40,000 contracts. Yet despite the numerous benefits of CLM, most companies still manage contractual obligations and contracting processes manually. Gartner estimates that 85% of companies do not have an enterprise contract management system, a precarious decision in today’s business world. 

Below are the top 9 risks enterprises take with a bad contract management system (or lack thereof). 

1. Ineffective approval workflow

Have you ever had a deal die on the vine? Without automating approval workflows, contracts can get unnecessarily delayed. The longer it takes to approve the contract, the greater the chance for the deal to fall through. In fact, many deals even contain terms that expire if they aren’t executed in the specified time frame. The solution? A flexible system that removes human errors by automatically pushing, routing (to the right people), and escalating contract approval as needed. 

2. Compliance issues

Lack of compliance is no small concern for a business – it can lead to missed opportunities, regulatory fines, and may even put your business license in jeopardy in the event of a severe compliance breach. By implementing rule-based contract management software, companies can minimize compliance issues and ensure adherence to the ever-changing critical regulations and provisions. 

3. Lackluster reporting

Repository-only contract management systems don’t have the ability to turn complex data into easily actionable business intelligence. In contrast, a good CLM system uses extracted metadata, context driven contract searching and flexible reporting to arm business leaders with purpose-built reports that allow them to identify risks before they manifest. Additionally, a good CLM system provides real-time reports throughout the contract lifecycle, helping both the contract owners and broader enterprise complete successful projects on time with efficient use of talented resources.  

4. Lost revenue

According to World CC research, good contract management can save a company up to 9% of its annual revenue. Now, more than ever, companies are looking to every corner of their business to unlock unrealized revenue and decrease operational costs. Luckily, however, there is a goldmine hidden in plain sight: contract data.  

Tapping into a company’s contract data is like tapping into a revenue stream you never knew existed. Once the data gets flowing, there is reduced administrative waste, a decrease in sales cycle times, less risk of noncompliance, and better renewal and expiration management. In fact, some companies have seen as much as $1 million in savings in one year. According to analysts at PricewaterhouseCoopers, a business can save up to 2% of its annual costs by using CLM and reduce erroneous payments by 75-90%. 

5. Missed obligations

When it comes to risk, don’t forget about missed expirations and renewals. After all, one missed date could lead to a lawsuit. For example, if a company utilizes intellectual property outside of the predefined duration, it’s a surefire way to invite litigation. On the licensor’s side, a missed expiration date could also lead to a potential loss of revenue – a mistake that could be avoided with a quality contract management software system that alerts staff of upcoming expirations and renewals. At a more fundamental level, if an auto-renewal clause is invoked and raises prices for products you purchase, you are at risk of overspending. 

6. Excessive access

Keeping sensitive information safe and secure is of upmost importance for companies in today’s digital world. Excessive access to systems can lead to inadvertent sharing of confidential information or in some cases, “bad actors” mishandling information or potentially even walking away with trade secrets. Access should vary between departments, divisions, teams, and employee classifications. Multi-layered access controls compartmentalize data by addressing different needs, ensuring that only those who need access should have access. 

7. Bad NPS scores

In the business world, an NPS score—otherwise known as Net Promoter Score—is extremely important. After all, customers often choose whether or not to engage in a business based on their NPS score. Investors also make decisions based on this number. Slow, frustrating, and manual contracting processes have been known to bring down NPS scores significantly.  

8. Inflexibility to respond to change

COVID-19. War. Inflation. What were once considered unpredictable events are now happening left and right. Businesses have to be able to adjust to these turbulent market conditions – and rapidly. Thanks to a single tweet, markets can change, unrest can happen, and responsiveness and agility have taken on a new dimension. As Agiloft’s Andy Wishart describes it, businesses need to possess the nimbleness to “shift on a tweet.” 

9. Trapped data

Lost revenue is not the only thing you can recapture with good contract management. A good CLM system can provide a wealth of business intelligence, too. While only 10% of contract language refers to its deliverables, the other 90% is often overlooked or ignored, wasting potential analytic value. With CLM, you’ll be able to unlock that 90%, opening the doors to a treasure trove of business-critical intelligence.   

It’s clear: the risks of having a bad CLM system or no system at all are numerous, but the benefits of a good system are vast and substantial.  If you find yourself without a contract lifecycle management system or are doubting the efficacy of the system you currently have, you’re not alone. Agiloft is here to help you mitigate those risks and empower your business to prosper as it should.

Reach out today and schedule a demo to learn more about how Agiloft’s flexible, no-code CLM solution, where more than 97% of 1,000+ customers renew their subscriptions every year, can help you take control and become the hero of your workforce.  

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