The Top 5 Contract Management Risks

In a world where your pizza chain can tell you exactly where your pizza is and when it will arrive, why can’t large companies keep track of their contracts, including critical obligations and renewals?

Contract visibility, the ability for companies to instantly locate, retrieve, analyze and track contracts across the enterprise, continues to be suboptimal at many large companies.

PwC estimates the average Fortune 2000 company has between 20,000 and 40,000 active contracts. Historically, these contracts have been stored in desks, filing cabinets, shared drives or in email. The contracts cannot be searched against for fast retrieval, and data within the contracts cannot be extracted in order to track expiries, renewals and obligations.

Sources of contract risk

The situation leads to serious contract risk. When these contracts are sitting as unstructured data in a repository that’s difficult to search — or even worse in someone’s desk — bad things happen. One technology consulting firm missed $1.5 million in revenue recognition when a manually-tracked SOW expired but work was still performed against its. Discounts and rebates are overlooked, and unwanted renewals happen on autopilot.

Poor contract visibility is just one of five big contract management failures that put companies at risk for lost revenue and added cost, whether the bulk of contracts are buy-side, sell-side or enterprise-wide.

Other sources of risk include:

  • Insufficient velocity of contract negotiation, creation, and approval: Slow contract turnaround time means lost revenue for companies.
  • Uncertain compliance of internal and supplier requirements and risks: Without a sophisticated contract management platform in place, contracts are often filed away and forgotten about once they are signed, meaning that tracking supplier performance against contracts is impossible.
  • Lack of standardization of contract systems, processes, formats and clauses: When contracts aren’t standardized, it’s common for clauses to make their way into a contract that can hurt the company later on.
  • Heightened complexity of global operations, laws, suppliers and commitments: With regulations like the EU’s General Data Protection Regulation going into effect, companies have to be extra diligent to ensure that compliance is baked into foundational agreements with vendors and customers.

Poorly executed contracts introduce significant exposure. Identifying and managing contract risk is critical for making correct decisions. Big enterprises are generally mature in evaluating contract risks when negotiating, but rarely have the capability to effectively monitor them once those contracts are in force.

There is a better way

Enterprise-wide contract management software allows companies to automatically digitize their contracts and place them in a central, cloud-based repository. This means any contract can be accessed at any time from anywhere in the world. Because the contracts are digitized, important information like obligations, pricing and rebate information, and expiries can be automatically extracted and tracked for 360-degree visibility. The Icertis VisualizeAI application, built on top of the Icertis Contract Intelligence (ICI) platform, enables users to quickly find and load a large volume of contract data, navigate relationships and easily discover patterns.

With an enterprise-wide, AI-powered contract management platform, contracts cease to be hidden sources of risk and become strategic assets. Contact us to start your free demo today.

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