Let’s be honest, contracting is a pain. It can be a tedious slog for lawyers, involving time-consuming back and forth, reading and rereading contracts until signature is finally reached.
The first problem, albeit an obvious one, is that it is unavoidable. Contracting is unpleasant, but necessary. Agreements and commitments must be committed to contract and locked down so that both parties understand and remain compliant to their obligations.
Anyone brave (or foolish) enough to just sign a contract without due diligence will quickly find themselves out of a job – no matter how tempting it might be when the contractual merry-go-round starts again.
The second problem is that lawyers have to get involved with contract negotiations. It is a lawyer’s bread and butter, even though it regularly becomes a time-sapping, tedious admin burden for them.
There is hardly a queue of willing participants to take over. Outside of legal, most people feel uncomfortable when negotiations proceed to contract draft and signature. They don’t quite understand the intricacies, but they do understand that there is a lot that can go wrong.
Post-signature contract management is also problematic
This scenario is not improved once contracts are signed. Companies that do not digitise their contracts often struggle to know even the most basic of information regarding them. For example, how many contracts do we have? Where are they stored? What do they say?
The world we live in can change overnight. The global pandemic is a perfect example of this, and we can add other examples such as stock market crashes, changes to legislation such as GDPR and data privacy, and natural disasters to that list.
Every business will need to quickly refer to their contracts to understand how each new turn of events impacts their contractual obligations. But not knowing what they contain, never mind where they are in the first place, is an obvious cause for concern.
Companies that lack insights into their contractual data may also lack the internal resources to conduct a thorough audit to understand their position in regard to new legislation, a change in the market, or when considering an acquisition. All too often businesses will call in external resources, such as one of the big 4 or a large law firm, and pay them handsomely to tell them what is in their contracts.
Businesses are willing to pay this price because the cost of failing to understand or take notice of contractual data can be even more expensive. PricewaterhouseCoopers estimates that 9.2% of annual turnover is lost to poor contract management, often through value leakage.
What is value leakage?
Value leakage is the amount by which contracts under perform against their potential. It is the difference between the value negotiated in theory, and the value realised in practice.
We have all probably seen value leakage in action. Procurement painstakingly negotiates excellent terms from a supplier, but the value received in real terms is significantly lower than expected. Sales does an incredible job to win several big new contracts, yet revenue in the bank is not what sales log in their revenue reports.
There are many reasons for value leakage and therefore many ways in which this can be averted, but let us look at one common scenario. An effective contract management policy that includes automated contract review technology is one area that can definitely help, as this legal tech creates digital assets from analogue contracts.
Digitisation makes contractual data analysis far easier and faster
Digitising contracts at the point of initial review creates a structured asset that is ready for regular, quick and granular analysis.
In contrast, paper contracts are notoriously difficult to interrogate. It takes senior lawyers chunks of valuable time to trawl through each and every contract, each time looking for specific wording that relates to the current crisis that has sent them running to their contracts.
However, with digital contracts millions of data points can be explored on demand, at speed and scale, to find patterns and insights. This delivers two clear benefits:
Firstly, obligations can be quickly checked so the business is always compliant and can maximise commercial opportunities. In this way there is no need to allocate precious internal resources to manually sift through a portfolio of contracts, and neither is it necessary to waste budget on a team of external consultants.
Secondly, it offers the opportunity for the business to understand how to optimise their contracting processes. Each negotiation can be examined to calculate what went well and what went wrong. If the full value of deals is not being realised, why? What are the common patterns? It may even be a question of who is the common denominator? Is it a problem pertaining to contracts with specific clients, or for specific goods or services?
Digitisation turns analogue contracts into digital assets that are prime for data exploration, discovering actionable insights that lead to better business outcomes.
Create a digital point of truth
Rather than being seen as a negative, the essence of contracting – capturing all relevant information that is vital to business operations – should be treated as a positive; an opportunity to gain competitive advantage. All information related to the company and its relationships is stored here:
All employee details: who are we employing, to do what, what are the personal terms, and what are they responsible for?
Supplier contracts: what and when do we pay our suppliers, what are our terms, and what happens if we or the counterparty do not adhere to those terms?
Customer contracts: who is buying from us, who can we upsell, and what terms have we agreed with each customer?
Looked at in this way, contracting is a glass half-full/half-empty scenario. With the right legal technology creating digital assets that are ready for immediate data analysis, contracting is no longer an admin burden – it is a point of truth that acts as a business accelerant.
Contracting moves from a monotonous grind to a margin builder, as knowledge and insights within the portfolio of contracts can speed business growth. Consider the advantages of being able, at any given time, to understand:
When you can raise your prices next month or renegotiate more favourable terms
When you are in danger of not meeting obligations and risk heavy penalties
The terms that regularly cause delays or value leakage to your contracts
Do not let the value of your contracts leak due to ignorance. Use smart legal tech to tap into contractual insights and move faster than your competitors. By automating every initial contract review you create a digital asset that allows your legal team to identify and prevent value leakage, and drive faster business growth.