Enterprises manage multiple contracts for a range of purposes, right from purchasing, sales, service, warranty, leases, non-disclosure agreements to legal agreements. The average number of contracts handled by an organization could be hundreds or thousands every year. Reports indicate that 60-80% of business transactions are generated or bound by contracts. Despite the volumes, they are not managed and monitored effectively.
Contract lifecycle management has multiple challenges, especially when it is spread across multiple departments, versions, and parties. Complex contract processes that are unstructured and handled manually may lead to longer cycle times, low-yield tasks, compliance risks, and finally revenue losses. According to IACCM’s research, on an average, an enterprise may lose around 9.2% of annual revenue due to weak contract management.
So, how can you identify if your contract management is on par and circumvent these losses?
Here are the 5 signs that indicate your enterprise needs to shift to a new approach of contract management:
Do you have to depend on multiple people and handle multiple processes through contract life cycle management? Do you have to wait for hours and days to track any contract changes or extract any contract details? Do you hear multiple versions of contract details from different people? Lack of a centralized and accessible location that can hold and track the contract information in real-time can harm the contract management progress. Manual errors, contract cycle bottlenecks, unclear processes can increase the compliance risks drastically.
Are you observing different patterns and terms being used in the contracts? Are the contract managers confused with the terms to be used? Unavailability of standard clauses and terminology may introduce confusion, risks and impact the quality of the contracts. It may also take a longer time for review, thereby extending the cycle times.
Difficulty to amend and act
How flexible and easy is it to make any changes to the contract over its lifespan? Are the existing processes enabling the business to anticipate and accommodate the amendments and renewals at the right time? Lack of visibility and poorly managed contracts can cause revenue leakages or loss of opportunities. According to IACCM’s survey, 77% of organizations report revenue leakages due to project delays or cost/scope creeps.
Lack of insights
If you’re lacking visibility of contract terms, value, and performance of the contracts, then it’s time for a shift in your contract management approach. Inability to understand and track the contract value and its performance may trigger revenue losses and does not provide any opportunity to take preventive measures.
Tug-of-war between risk and time – cONTRACT mANAGEMENT
Legal teams want to reduce the legal risks by reviewing the contract thoroughly. The procurement/sales teams may want to close the deals quickly. This means that you’ll always have to compromise between risk and time to execute contracts. The business may experience this friction primarily due to ineffective contract management.
An effective contract management solution can improve the visibility and control of the contract management process, reducing the legal and financial risks without compromising time.
According to IACCM member survey, 81% of the businesses have plans to implement contract automation, where 68% of them cite medium-high priority. In the current economic conditions, it is vital to control potential losses and quantify the costs of the whole contract life cycle. Aberdeen Group research reveals that companies with contract management solutions reduce average contract cycle time by 19%.
Solutions such as Vuram’s Contract management System simplify and automate the contract cycle from initiation to execution and beyond. Want to explore more? Write to email@example.com for a demo/consultation!
– an article by Sireesha Gangavarapu, Product Manager, Solutions, Vuram