Juggling numerous contracts at once can become an overwhelming task that can spiral out of control. Contracts can be as short as one paragraph to as long as thousands of pages, which demands the need to be continuously looked after throughout their lifecycle. It is not enough just to store data onto a centralized platform. Therefore, contract management should be viewed as a process that can be changed and improved overtime.
Contract lifecycle management consists of 9 stages that leverage Artificial Intelligence to successfully transport each and every agreement through each phase. The repository, a place for contracts to be stored electronically, is the core of any contract lifecycle management platform. All contracts have the potential to carry risks, with some being riskier than others. Thankfully, the more contract lifecycle management stages enterprises accomplish the less risk they will obtain.
It is important to worry about risks because it can impact enterprises gravely. When companies know their obligations and liabilities there is a better chance they will survive. Imagine spending hours of your workday searching for lost documents or paying an external consultant to conduct an assessment of risk management because of the lack of visibility. These two options are not only time consuming, but they are also costly. In case of a crisis, visibility is the key to surviving. Luckily, there is a way to handle contracts that is both efficient and effective.
How does a company know how to locate risks? The risks lurking in contracts can be infinite. Well, let’s take a look at artificial intelligence. It has changed the world of contracting by allowing businesses to have complete visibility through technology.
The Universal Contract Model™ provides companies a clear view into what their risks are. This model is trained to scan and analyze document information to be converted into data. That data is then inserted into the UCM™ based on specific embedded components. Let’s say for instance a company has a contract on file and they need to view past amendments made. The UCM will have captured all past amendments made on the master agreement where changes roll up for prevailing terms. This Model uniformly maps out data from all contract types.
Contract risks run from the mundane to the life threatening. Let’s take a look at a few of the top risks that enterprises come across during contracting.
Risk #1: Misplaced or Forgotten Contracts. The legal team is responsible for keeping all contract documents stored in a safe and secure location. Not knowing about a contract or misplacing a contract can impact a business gravely.
Risk #2: Unfulfilled Contract Obligations. Upholding commitments in a contract is very important to both parties. If consensual standards are not met it could result in no payment, legal penalties, or reputational damage.
Risk #3: Unapproved Terms and Conditions. Most of the time, contracts can be changed and renegotiated. Amendments and clauses can be added to contracts only if both parties agree however, without an efficient monitoring process even the most recent changes may be overlooked.
Risk #4: Non-Compliant Transactions. There is always the possibility of a non-compliant transaction occurring. Companies should be wary of unauthorized transactions that can hinder a companies financial standing.
All these risks can be minimized with the 9 steps of contract lifecycle management.
Repositories: With one central storage place, companies will be able to reduce risk of missing contract expirations, unintended renewals or the correct finalized version. Employees that need access across all departments can easily view contracts with the most recent updates.
Reporting & Analytics: Businesses are able to identify duplicate, conflicting, or interdependent contracts therefore, gaining insight into any contract obligations. There will be reports made based on data, so companies can understand and take action on any potential risks quicker than before.
Automate Contract Creation: Say goodbye to the outdated practice of tagging. Business users can now begin creating agreements through the use of pre-approved templates and clauses. To prevent unapproved terms and conditions this feature will automatically flag any concerning amendment or clause and send to legal for final approval and signature. Companies will obtain more control and legal departments will be able to focus on more critical issues.
Compliance Manager: CLM software automatically verifies that all purchases are in compliance with contracts. When non-compliant transactions are made it can be automatically flagged or put to a stop. Legal teams will gain much more visibility and predictability into potential difficulties.
Yes, it’s not easy but it is possible, and it is something all enterprises need to do. When assessing risk two factors should be considered, the potential risks and the probability. Exari provides customers with a Risk Scoring algorithm that grades the level of risk from 0-100%. This provides companies with a high-level view on where each contract fall on a risk versus value scale.
The lifecycle of a contract is vital to minimize risks and to increase visibility. AI machine-based learning has given enterprises the technology to manage their contract portfolio resourcefully while improving enterprise operational performance. To learn more about how to catch the risks lurking in your portfolio, click here to register for our webinar on July 24th, 2018 featuring Forrester.