Why missed obligations are contracts’ silent revenue killers 

Your favorite song is playing in your earbuds, you’re working through your task list …and then it happens: a normal ping in your inbox, or so you originally thought.

Next, your collar feels a little tight, sweat beads above your brow, and knots form in your stomach as you stare back at an unintentional, automatic contract renewal for a legacy and unused system – a $60,000 bill that your organization had no intention of paying.  

Cue the panic.  

Every business relationship starts with a contract. Your employees, customers, vendors, partners, and beyond have entered into an agreement to provide you with something, and you to them. This means each member of your organization has a vested interest in some sort of obligation: an SLA, a payment term, notices about maintenance windows, service-level penalties, rebate programs, audit rights, data processing, document retention, and much, much more. And, while the stories of missed, untracked, or unfulfilled obligations are as anxiety-inducing as they sound, they should remain just that: stories.  

Accurate and successful obligation identification and, by extension, risk management, is often one of the most difficult processes to master, even though it has the potential to make the largest impact directly on your bottom line.  

So, what’s the best way to tackle this behemoth of a contracting problem, and where do we start?  

Identifying and tracking obligations 

Obligations come in all shapes and sizes; there are different types and styles and fundamentally different ways that they impact your organization, which is why identifying these varied but equally important pieces of information is a task that organizations have been attempting to tackle with the aid of legal technology for years.

Let’s take a look back at the history of obligation identification and risk management:

Before the world wide web: Manual tracking reigns supreme 

Traditionally, individual team members were responsible for managing their own contracts each person tasked with identifying obligations themselves, manually tracking those commitments and their fulfillments, and making strategic improvements for the future.  

With such a manual process, obligations were often missed, and risk was not properly managed or communicated across teams. Individuals held the main responsibility and knowledge of their obligations, which wasn’t sustainable for long-term business vitality. Enter: the internet.  

Early internet and email: Digitization begins

As the internet began to take shape, so did the growth of roles in and around the contract management process. In the early days of the internet, roles such as contract administrators, legal operations, and procurement and sourcing managers became more common – all roles focused on improving and managing the contract process. During this era, contracts moved from desk drawers to digital filing cabinets, and from walking them down the hall to sending a copy via email, but the siloes still existed.  

As companies grew into global operations, achieving a holistic view of obligations and risk remained a distant goal; something raised briefly in a conference call but rarely acted upon. Contracting remained largely manual; processes were completely disjointed, and businesses were suffering, if largely in silence, because of it. Sure, progress had been made, but it still didn’t fully address risk management.   

The introduction of Contract Lifecycle Management (CLM) software  

The internet grew fast and has continued to do so! Organizations saw more complaints about time-to-signature, the lack of centralized access of contracts across departments, the inability to make strategic decisions based on past business relationships, and more, as critical problems that needed to be solved and solved fast. This is when CLM software emerged. 

For the first time, central repositories with smart workflows emerged on the market, and major strides were made in contract management. Unfortunately, while process and accessibility issues vastly improved, the identification, tracking, and sharing of contractual commitments remained a hyper-manual and error-prone process. Even with advancements in optical character recognition (OCR), and technologies that might easily identify a payment term or renewal window, more nuanced obligations continued to fall through the cracks.  

Modern day, AI-enhanced CLM and the future of risk mitigation 

As CLM technology continues to evolve, companies have leveraged AI to address the remaining gaps within obligation management. Agiloft, for example, recently released AI-enhanced obligation extraction. With this new functionality, users can identify obligations of any type, even those that are more nuanced or buried within the contract and share that information across the organization for proper tracking and monitoring.

Whether you decide to set up reminders via your CLM or integrate into different systems, teams will be able to protect the 5-9% of lost revenue that PwC estimates most organizations experience.  

Turning risk into a competitive advantage

It’s easy to see why the pesky problem with obligation management has persisted throughout technological transformation over the years. Obligation management can be both tricky and extremely situation-specific – two elements that don’t traditionally pair well with automation and scale.  

We’ve officially hit the tipping point, though, from managing the day-to-day of obligations and contract risk to proactively identifying and mitigating risks through successful obligation management.  

Now, teams can not only properly forecast with real-time obligation data, but also take time to accurately monitor risk, strategically improving relationships, contract language, and future processes overall.  

When properly managed, contract obligation management is one of the only business automation opportunities that directly impacts your cashflow and revenue stream. That’s why it’s time to finally say goodbye to costly overages, unexpected renewals, and unrealized contract value, and say hello to AI-enhanced obligation management.  

So, next time you’re enjoying a hump day and you hear the familiar ping of your inbox, make sure it’s an email from your CLM platform with a list of contracts set to auto-renew within the next 60-days – no surprises, no overages, just proactive and strategic risk management.  

The future is now. Read more about Agiloft’s revolutionary AI-enhanced obligation management here.