Poor contract management: what costs do you expect?

1. Contracts Cost a Lot of Time and Money to Draft

A significant cost contribution often comes from the time and effort involved in drafting contracts. According to a study by Word Commerce & Contracting, contracts of simple complexity already cost around USD 6,900 per contract, contracts of medium complexity cost USD 21,300 and complex contracts USD 49,000. 

The costs are easy to understand: If you consider that even simple contracts or simple offers in organisations trigger a complex process that extends across several departments, the corresponding costs can quickly skyrocket. With an average wage cost of EUR 100 per hour, this results in a workload of about 60 - 70 hours, which is often necessary in order to 

• find existing contracts, 
• evaluate the contracts, 
• to put together the new products or modules for the customer, 
• determine the pricing for the modules offered and
• obtain clearance from various managers.

In many cases, we observe that the processes often still have to be carried out manually. As soon as additional software is used, it often cannot communicate with the other systems. The process thus becomes a gauntlet. 

2. Lost Sales Volume - There Is an Upside in All Contracts That Can Be Uncovered Through Intelligent Management.

Up to over 9% of a company's total annual turnover is lost each year, according to the World Commerce & Contracting study. The percentage is even higher, up to 15%, for larger organisations. A quite plausible explanation can be found in the handling of contract renewals. 

Imagine for a moment that you need to renew a contract, but you can't find the original contract again. On that day, you frantically dig through several Excel spreadsheets and paper contracts to locate the contract you suspect is up for renewal. 

As your product offer has changed and you are forced to increase the price in the context of increased inflation, this is the perfect opportunity to analyse the existing contractual obligations and enforce the new offer including the new price.

After several tedious hours spent manually sifting through hundreds of contracts, you finally find the contract but without signatures. You now have to call the customer to get the final contract, who tells you that the contract was already extended for another three years last week under the same conditions. This means that you lose several hundred thousand euros on the turnover side. 

Here are some more typical reasons why turnover is lost due to a lack of contract software: 

• Unclear scope and objectives: Cause for lawsuits/disputes
• Legal department was only called in late. Result: wrong form of contract and longer lead time
• Failure to involve all parties. Result: Unbalanced interests and future resistance 
• Excessively long negotiations. Result: competitive pressure and delayed revenues. 
• Contractual conditions and negotiation focus on risk distribution. Result: loss of economic benefit
• Lack of flexibility in the contract; result: contracts have to be adapted continuously. 
• Contracts are difficult to understand or use. Result: Users see the contract as irrelevant to the transaction.
• Inadequate handover from the deal team to the implementation team. Result: Failures and misunderstandings of commitments and obligations.
• Limited use of contract software. Result: Inefficiency and loss of quality in performance and analysis.
• Weak governance after contract award. Result: Repeated problems and errors leading to loss of value

3. 10% Of All Contracts in a Company Are Lost Every Year

About 71% of all companies are unable to find 10% or more of their contracts, as reported by the Journal of Contract Management Management. This makes it difficult for the companies concerned to perform as agreed or to renew or terminate the contracts in a timely manner. If the contracting parties are not in dispute, copies of the contracts can usually be requested from the other party. In the event of a dispute, however, this is no longer so easy.

In the latter case, failure to comply with contract terms can quickly turn into a claim for damages and lead to legal costs. A simple and cost-effective way to avoid these undesirable circumstances of losing contracts is to use contract management software to store, manage and even draft contracts.

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The Solution: Contract Software Offers a Simple and Efficient Remedy for Poor Contract Management

Having looked at the costs of poor contract management, it is now time for some good news: overpayments, missed deadlines and wasted time due to poor contract management can become a thing of the past when web-based solutions are implemented that automate, centralise and give system-wide visibility to all contracts. 

Here are four positive effects that switching to a contract management platform has on employee productivity and satisfaction:

1. Don't just rely on your memory. Avoid forgetting contract renewal dates (and the costly penalties and financial risks that come with them) by receiving automatic email alerts and notifications. Never miss a deadline again!
2. Put an end to manual work. Reduce the time it takes to close contracts from weeks to days by setting up a central digital repository for all contracts. Do away with spreadsheets and paperwork!
3. Work seamlessly with your team. Standardising on a web-based solution promotes collaborative workflows and provides document editing and collaboration tools, making it easier and faster for staff to work together. With e-signature modules, you also save time searching for signers by sending electronic signature document completion triggers instead.
4. Deepen your contract assessment. Effortlessly run reports that provide detailed insight into all contracts, including those that are at risk or require more in-depth evaluation, assessment or amendment.