The average Fortune 2000 company has between 20,000 and 40,000 active contracts at any given time. It is understandably difficult to manage that much information using a manual process. Yet failing to effectively manage contract risk can force an organization to forego millions of dollars in revenue, creating unnecessary risks, and harming long-term growth potential. In fact, one Icertis customer missed $1.5 million in revenue recognition because they were manually tracking SOW expiration dates.
A robust contract management platform is essential to manage risk, and capture the value hidden inside contracts. According to one source, having a formal contract management system can increase a company’s compliance by 55%.
Here are four specific ways an enterprise contract management platform can address risk:
1. Limited Visibility
Stakeholders in every department should have access to contracts that affect them. When contracts are easy to find, read, and track, the organization as a whole is less likely to miss capitalizing on potential discounts and rebates. Users can also stop unwanted renewals by carefully monitoring expiration dates and automatic term renewal periods.
2. Conditions Precedent
Some contracts require an event to occur to trigger a payout clause. If these requirements aren’t met in a timely manner, an organization may end up relinquishing a specific benefit for that particular contract. Your contract management system should set out exactly what action should be taken to get the full value out of each and every contract.
Keeping up with legal compliance based on the various jurisdictions in which your organization operates can be challenging. The regulatory environment is in a constant state of change. Contracts should comply with internal requirements as well—both your company’s standards and supplier, vendor, or end-user requirements. The ability to change language across a set of contracts with the same criteria is helpful in dealing with compliance issues.
4. Deadlines and Milestones
Virtually the entire business world operates on deadlines. This is particularly true in contracts. Missing deadlines or milestones can cost companies thousands of dollars in miss revenues, especially in situations where missed deadlines will void a contract or result in liquidated damages for delays.
Effective contract risk management means tracking every one of these deadlines and milestones to ensure that nothing is overlooked. Missing deadlines is one of the most common concerns in ad hoc systems as there is no meaningful way to alert relevant parties that a critical deadline is approaching.
A Platform for Risk Management
The Icertis Contract Management (ICM) platform uses automation to track commitments, expiries, deviations and other contract obligations. Supplier checks are also automated, with seamless integration into Dun & Bradstreet, Thomson Reuters or third-party data. Individual users can configure risk assessment models to notify them whenever a contract is modified or external data changes.
These are just a few examples of the how the ICM platform can help manage risk. To learn more about risk management capabilities of the ICM platform, please download the whitepaper Risk Compliance and the Bottom Line – Why Contract Management Matters.