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Top Five Reasons to Automate Contract Management

Top Five Reasons to Automate Contract Management
Top Five Reasons to Automate Contract Management

July 10, 2013 Dahna Ori Contract Management  

We live in a litigious world, and most businesses are dealing with contracts that are both more numerous and more complex. So there are many good reasons to automate and improve the way those contracts are managed. In no particular order, here are our top five:

Contracts affect company health.

They’re important. They may not always be framed and pinned to your wall, but they will be pulled out and waved in someone’s face when the time is right, especially in times of stress or transition. Like when there’s a dispute about payment or a disagreement over scope. Or when there’s a change of management, an investment, audit or acquisition. It’s no exaggeration to say that a company with weak contracts is likely to be a weak company, and a company with strong contracts is likely to be a strong company. So any investment in contracts is an investment in company strength and value.

Contract ignorance is not bliss.

In the short term, maybe. But in the longer term, what you don’t know about your contracts can (and probably will) hurt you. You may not realize that important contracts have expired, leaving you without certain rights or forced to renegotiate on unfavorable terms. You may have given very expensive indemnities with no adequate way to mitigate the risk. You may have inadvertently triggered tax liabilities or compliance penalties that carry high financial and reputational costs. But if you don’t know about any of these things, you can’t fix them.

A bad contract process can kill sales.

This is a tragedy when you think about how much blood, sweat and tears goes into winning a deal: you need a great product; you need great sales execution; and you need a compelling business case. But if all these efforts funnel into a contract drafting and approval bottleneck, it’s almost certain that some deals will fall over before you sign. Selling is not like wine-making. Being slow is not good. By streamlining and automating contract drafting, you increase deal throughput and minimize the chance of losing deals due to funding cuts, management reshuffles or competitor meddling.

Bad contract terms reduce profitability.

Sloppy contract language can be just as damaging to the value of your hard-won deal as a slow process is to closing it. For example, early termination rights can slash the value of a multiyear deal. Uncapped liability can spook investors if your products are used in high-risk industries. Omission of price review language can send long-term deals deep into the red. Automation helps you two ways: First, by revealing which contracts contain risky clauses, it allows you to prioritize the clean-up effort. And second, by embedding best practices into an automated drafting process, it lets you eliminate most of the bad stuff from future deals.

Contract know-how is most valuable when it’s shared.

You’ll never realize the full value of your contract knowledge if there’s no central system for your team to quickly find the information they need. One person may know that you negotiated a special discounted price, but if the person paying can’t see it, that benefit will be lost. Another person may have finely tuned arguments for including various protective clauses, but if other front-line negotiators don’t share that knowledge, you may lose the benefit of those clauses. With a good contract management system, all the people who need it can access and use valuable contract know-how, such as milestones, service levels, pricing terms, contract negotiation tips, and useful clauses. Contract management takes the knowledge of the few and unleashes it on the many. It gives you the leverage to become a truly high performance organization.

To find out how much you might benefit from a faster process, better contract terms, and better knowledge sharing, talk to us.

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Dahna Ori is Exari’s Digital Marketing Specialist. Reach out on twitter @ExariDahna