How to Increase Sales, Reduce Cost and Minimize Risk with Intelligent Contract Management
The pressure is on. Regardless of your industry, you are expected to deliver more with less: more revenue with less cost and more results with less risk.
The good news for Legal and Sales Operations teams is that intelligent contract management can help you meet these challenges, with substantial benefits flowing to your bottom line.
Up for Grabs: 9% of Revenue
Perhaps, the first question anyone might ask about automating contracts is whether it will really move the needle. And, based on IACCM and Aberdeen research, the answer to that question is a big “yes”. Aberdeen states that “Poor management of contracts in the opportunity-to-order cycle results in revenue leakage between 5% and 9%.”
The International Association for Contract and Commercial Management (IACCM) cites a similar number: according to their research, 9.2 percent of annual revenue is the price corporations pay for managing their contracts inefficiently.
For a $1 billion company, 9 percent of revenue translates to $90 million of potential benefit from contract automation and process improvement.
How Contract Automation Helps: Do More, Know More, Risk Less
In practical terms, intelligent contract management helps you in three major ways:
First, it allows you to know more about your contractual rights, risks, obligations and process – which means you can identify, prioritize and fix costly problems that were previously hidden in the fine print.
Second, it allows you to risk less across your contract portfolio, through milestone reminders, more consistent use of limitation of liability and other protective clauses, and reduction of errors and compliance failures.
Third, it allows you to do more deals through automated, self-service, pre-approved contract drafting, resulting in greater revenue per quarter
For most businesses, step one is to get all your contracts in one place and extract at least some basic information about the key terms of those agreements. Armed with improved insight into your contracts you now have some chance of answering important questions like…
- How many contracts have renewal deadlines in the next 3 months
- How many contracts have uncapped liability?
- What minimum insurance obligations have we agreed to?
- How many contracts contain non-assignment and change of control termination provisions?
- Have we ever agreed to most-favored-nation pricing, and on what terms?
- How often have we given compliance representations?
- Which stage of my contracting process is the slowest and what’s causing this bottleneck?
Once you know more about your contracts, you can start to manage or eliminate the biggest risks, including:
- The risk of revenue leakage through missed renewals or weak pricing terms
- The risk of uncapped liability exposure
- The risk of compliance failures, breaches and early termination
- The risk of regulatory penalties
- The risk of overstated revenue
- The risk of counterparty failure/bankruptcy
- The risk that non-standard clauses will create problems during M&A due diligence or audit processes
And last but not least, a fully featured intelligent CM application allows you to get more contracts drafted, negotiated, approved and executed, by streamlining and automating key steps in your process:
- A greater proportion of your deals can be automated for self-service drafting by front office business teams, using a wizard to guide and create a suitable document.
- Only deals that contain high risk triggers need to be routed for legal approval, increasing quarter-end deal throughput by 20% or more.
- Automation ensures more consistent use of best-practice pricing terms, ensuring better quality contracts with more revenue per deal.
- With more knowledge about your process and bottlenecks, workload can be quickly reassigned to ensure a more balanced distribution and higher quarterly close rates.
- Negotiation teams can use various tools including clause libraries, playbooks and deal analytics to ensure that everyone comes up to speed on best-practice more quickly.
What’s In It for You?
So how much will your company benefit precisely? This depends on a number of things, so you need to ask yourself some questions:
- How many sales people do you have?
- How many contracts do they do in an average month?
- How much time does legal take to get these back to the customer?
- How many deals are agreed upon but not signed in a typical quarter-end or year end?
- What percentage of renewals do you capture each year?
Typically, Exari clients see the following results:
- 20-50% increase in contract throughput
- 50% reduction in contract errors
- 25% reduction in risk exposure
Webinar on Demand
To learn more about the benefits of CM and some of the lessons learned from a real world implementation, come join Terry Lee, president of Exari, and Thien Dinh, vice president and deputy general counsel, RMS, for a webinar that expands on these themes.