Poor Contract Management: What Costs You Should Expect

1. The price of contract preparation - contracts cost a lot of time and money to prepare

A significant contribution to costs often comes from the effort involved in drawing up contracts. Contracts with simple complexity result in accordance with a study by Word Commerce & Contracting Costs already amount to around USD 6,900 per contract, medium-complexity contracts amount to USD 21,300 and complex contracts are worth USD 49,000.

The costs are easy to understand: When you consider that even with simple contracts or simple offers in organizations, a complex process is initiated that covers several departments, the corresponding costs can quickly skyrocket. With average labor costs of EUR 100 per hour, this results in a workload of around 60 - 70 hours, which is often necessary to

• 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 approval 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 is often unable to 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 administration

According to the World Commerce & Contracting study, up to 9% of a company's total annual turnover is lost every year. The percentage is even higher, up to 15%, for larger organizations. A fairly plausible explanation can be found when dealing with contract extensions.

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

Since your product range has changed and you are forced to raise the price as a result of increased inflation, this is the perfect opportunity to analyse the existing contractual obligations and to enforce the new offer, including a new price.

After several arduous hours spent manually sifting through hundreds of contracts, you finally find the contract but without signatures. You must now call the customer to receive the final contract, which tells you that the contract was extended by a further three years last week with the same terms. As a result, you lose several hundred thousand euros on the turnover side.

Here are other typical reasons why sales are lost due to a lack of contract software:

• Unclear scope and objectives: cause of laws/disputes
• The legal department was only brought in late. Result: incorrect form of contract and longer lead time
• Failure to involve all parties Outcome: Unbalanced interests and future resistance
• Excessive negotiations. The result: competitive pressure and late income.
• Contract conditions and negotiation focus on risk distribution. Outcome: loss of economic benefit
• Lack of flexibility in the contract; result: contracts must be constantly adjusted.
• Contracts are difficult to understand or use. Result: Users see the contract as irrelevant for processing the transaction.
• Inadequate handover from the deal team to the implementation team. Outcome: Failures and misunderstandings with regard to commitments and commitments
• Limited use of contract software. Result: inefficiency and loss of quality in performance and analysis
• Weak post-procurement governance. Outcome: Repeated problems and mistakes that lead to loss of value

3. 10% of all contracts are lost in a company every year

Around 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 provide the agreed service or to extend or terminate the contracts in good time. 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, non-compliance with contract terms can quickly become a claim and lead to claims for damages and court costs. An easy and cost-effective way to avoid these unwanted 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

Now that we've dealt with the costs of poor contract management, it's time for good news: Overpayments, missed deadlines, and wasted time due to inadequate contract management can be a thing of the past when web-based solutions are introduced that automate, centralize and make all contracts visible across the system.

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 appointments for contract renewals (and the associated costly penalties and financial risks) 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. Put an end to spreadsheets and paperwork!
3. Collaborate seamlessly with your team. Standardization to a web-based solution promotes collaborative workflows and provides tools for document editing and collaboration, so that employees can work together more easily and quickly. Electronic signature modules also save you time searching for signers by sending electronic triggers to complete signature documents instead.
4. Deepen your contract evaluation. Easily run reports that provide detailed insight into all contracts, including those that are at risk or that require more detailed assessment, assessment, or change.