Creating a centralised view of your business for your key stakeholders, and having the ability to track all contracts and documentation are key to contract risk management.
The combination of visibility and traceability means your business can avoid multiple types of contract risk including:
- Working from duplicated and inaccurate documentation
- Unwanted contracts auto-renewing
- Stakeholders not being aware that remedial actions are required ahead of certificate expiration
Contract risk management frameworks built on a foundation of visibility, traceability and automation protect the business from negative reputational, financial and regulatory consequences.
In this article, we take a look at how your business can mature its approach to contract risk management by using dedicated software.
Contract risk management definition
Contract risk management is a set of agreed processes that seek to minimise financial losses, non-compliance with regulation and contract breaches relating to agreed obligations.
Contract risk management, supported by technology, not only helps to protect businesses but it also helps to strengthen relationships with third-parties, ensuring contracts are fulfilled to a high standard and all parties mutually benefit from the agreements in place.
Managing risk with contract management software
It’s impossible to evaluate contract risk that you can’t see. Businesses that are using fragmented methods of contract management such as storing records in inboxes, shared drives or Excel spreadsheets expose themselves to unknown vulnerabilities.
The manual effort required to keep tracing contracts, obligations fulfilment and key dates such as notice periods is easy to put on the backburner when visibility is poor and the business has competing demands. Contract risk management can often be de-prioritised.
Contract management software allows businesses to underpin their risk management plans with automation, notifications and clear audit trails.
Let’s take a look at how dedicated solutions can help businesses to understand their risk landscape and mitigate problems proactively, all while streamlining the work required from in-house teams to stay risk free.
1. Centralise your contracts to increase risk visibility
Excel spreadsheets, shared drives and email inboxes may give you a place to store you contracts, but they don’t provide the means to monitor and manage risk effectively at scale. Contract management software allows you to store all of your contracts and related documents securely, in a centralised repository.
Centralised contracts, documents and metadata allow you to see an accurate snapshot of the risks currently posed to your business and plan appropriate mitigation strategies.
This improved visibility will bring potential risks, such as certificates nearing their expiration date, to the forefront, allowing you to take corrective actions and prevent instances of non-compliance.
Contract risk management becomes a natural and proactive strategy, rather than another task on someone’s already lengthy to-do list.
2. Easily search for key clauses, dates and terminology
The ability to understand your business’s risk landscape relies on knowing your contract portfolio inside out. Without knowing the obligations, terms and clauses pertaining to each contract, situations such as contract breaches and disputes can easily arise.
At worst, your business could be falling foul of compliance requirements, without even knowing it.
Failing to understand your contracts can undermine your relationships with third-parties, but it can also threaten your business at an operational level.
Expecting teams to know this information off the cuff or to spend time manually reviewing contract terms periodically is unrealistic and inefficient.
For scaling businesses with growing volumes of contracts or contracts that are complex, the ability to quickly search for terminology such as Force Majeure or key metadata such as end dates can put them in a much stronger position to mitigate risk such as issues with suppliers.
ContractNow allows users to find the information they need by allowing them to search across key metadata and within documents themselves. For clear visibility, searches can be categorised by contract, counterparty or the name of the file.
3. Protect your business from financial losses
Financial losses aren’t always obvious. Without a clear line of sight of your contract portfolio, your business could be paying for duplicate services, allowing contracts to auto-renew and contracts could be being signed without all relevant stakeholders knowing about it.
Fragmented data, inaccurate dates and a lack of contract tracking can all lead to financial risk.
Contract risk management processes protect the financial health of your business: avoid missing renewals, negotiate for better terms and consolidate the supplier base as needed.
Contract management software helps businesses to minimise financial risks by sending notifications to stakeholders when contracts are nearing their notice period or end date.
This prevents agreements from auto-renewing and gives businesses the opportunity to build in timely contract reviews, search the market for alternatives and negotiate for better terms.
ContractNow’s document repository not only helps you to stay ahead of key dates, but also allows your business to easily see key contracts and identify those that are most at risk. This allows teams to refocus their attention and efforts, making potential revenue leaks a complete priority so your business can act swiftly and protect its bottom line.
4. Trust record accuracy, prove regulatory compliance and be audit ready
Contract risk inherently increases when there are multiple versions of the same agreement as a result of being passed through different departments. If your business is subject to external audits, one of the biggest challenges is being able to deliver a complete and accurate portfolio with a clear history of all actions taken.
When manual processes are in place, preparing for an audit becomes time consuming as teams spend hours tracing through inboxes to find documents, the most up-to-date records and a trail of communication about any changes made to agreements.
If businesses fail to prove the completeness and compliance relating to their agreements, they face risks such as fines, litigation or even operational shutdown.
Contract management software gives businesses control of their versioning, communication and compliance efforts, providing a level of transparency that can’t be attained through fragmented and inconsistent internal processes.
ContractNow records every contract and counterparty action alongside names, time-stamps and dates these actions were taken. Defensible audit trails drive accountability for compliance across the business, while creating a complete and accessible history that can be easily supplied to external auditors.
The risks of non-compliance and audit failure are minimised through the total visibility and greater control offered by technology.
5. Prevent data breaches with enterprise level security
Not only should your business consider the level of risk within the contracts themselves, but it should also consider how securely those contracts are being stored. Excel spreadsheets, inboxes and shared drives only offer password protection and editing permissions at best, meaning your records could be edited, deleted or shared with incorrect parties at any time.
Leaving records vulnerable to data breaches, especially in highly regulated industries such as Healthcare and Finance, increases the risks of fines, lawsuits and lost customers.
Cloud-based contract management solutions allow teams within your business to securely access the information they need from wherever they are. ISO certified and complete with independent security testing,
ContractNow offers enterprise standard security, protecting the sensitive information kept within your records and preventing data breaches from occurring.
Contract risk management requires the alignment of standardised processes and dedicated technology that can automate any manual activity within your business that allows room for error - such as inaccurate data entry.
Maturing your contract management activities, including contract storing and tracking, beyond Excel and Shared Drives will allow your teams to stop spending time on admin so they can proactively monitor and mitigate risk.
Having total visibility and greater control of your contracts will allow your business to identify potential risks - whether that’s upcoming renewals, certificates about to expire or obligations not being fulfilled by suppliers.
Using contract management software to identify and mitigate risks lays a stronger foundation for protecting your business and its customers.
If you want to learn more about how ContractNow can help you to improve your contract risk management, get in touch today.