June 6 by Steve Feyer

Man writing a contract, something that drives top line growth

What is a Contract For?

Most business leaders would answer that a contract is designed to protect the company in case of trouble: What is the governing law? What are the terms of arbitration? Where are legal notices sent? Yet only 0.007% of contracts lead to a dispute resulting in arbitration or a lawsuit. That’s less than 1 in 14,000.

Every contract, on the other hand, can help the company build a successful trade relationship. That’s 1 in 1! So why do legal negotiations spend so much time focusing on the 0.007% likelihood of dispute when there is a 100% likelihood the contract will affect the company’s position in the market?

The answer is that commercial terms are too hard to manage using traditional contract management tools. With hundreds or thousands of contracts sitting in a filing cabinet —or in a simple repository— many businesses depend on desktop-based processes, ERP, and billing systems to manage their commercial terms. The contracts themselves are forgotten unless the unlikely dispute arises.

It’s no wonder just 17% of business people – the users of those contracts – polled by the International Association for Contract and Commercial Management (IACCM) say contracting processes support their goals. The same poll found that sales reps spend nearly a third of their time on contracts—time that could be spent selling.

Get your contracts out of filing cabinets, like the one in this picture, and drive top line growth

There is vast room for improvement and top-line growth — and the solution takes the form of Contract Lifecycle Management (CLM).

CLM Raises the Bar and Raises Revenue

Contract Lifecycle Management automates every step of the contracting process, from initiation and authoring through negotiation, execution, obligations management, and ultimately termination or renewal. By not only storing the contracts, but also managing the data inside of them, CLM allows companies to extract the value offered in every single contract.

Automated car factory, like the automation of CLM

Using CLM, companies can do more to maximize the value of their trade relationships. CLM users can:

  • Measure risk in the context of the portfolio of contracts.
  • Flag lifecycle events, such as renewals, and automatically take action.
  • Develop KPIs to measure relative effectiveness of certain terms and clauses.
  • Identify commercial terms of greatest importance to each counterparty, allowing a resulting agreement to maximize the outcomes of the contract and improve the durability of the business relationship.
  • Vastly speed up contract processes, freeing legal and sales teams to focus on other efforts.
  • IACCM found that the average company loses the equivalent of 9.2% of its annual revenue potential due to contracting and commercial practice issues—not only mismanagement, but also failure to extract maximum value from the contracts it wins or awards. That’s due to lower than expected revenue, higher than expected costs, eroded savings. The data shows much of this erosion can be avoided through a focus on quality and control in the contracting process. A modern CLM platform allows businesses to capture this value for almost every agreement.

    In today’s world, your commercial relationships are your company. So stop spending your time thinking about arbitration terms you’ll never use, and instead focus on the terms that make the deal. CLM gives you the tools to make every contract a net contributor to the top-line growth of your company.

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