Doing business bigger and better is the goal of every company across practically every industry, and most executives will go to great lengths to figure out new ways to bring in more sales. But what many companies don’t realize is that they already have all the information they need to bring massive improvements to their customer relationships and overall business structure sitting in their filing cabinets. That information is embedded within the company contracts. In this article, we will explore the importance of contracts in business and discuss how implementing a contract lifecycle management (CLM) tool that utilizes contract analytics can potentially boost your company’s profits and overall business experience to new levels.
Why Are Contracts Important?
Though often overlooked as a background detail, contracts are the lifeblood of every business. There is a common tendency in the workplace to view contracts simply as a formal way of closing a deal or completing a transaction. However, contracts contain an immense wealth of information about all aspects of a business. Not only do they provide a record of every past transaction, but they also detail exactly how that relationship between company and customer is played out. After all, client relationships are the backbone of a business, and contracts are the best source of data about those relationships.
Some of the essential details contained within each contract include how your business delivers products or services, how you are going to be paid for those products or services, and what needs to happen in the case of something going wrong in the midst of the transaction. Even if you have a very clear idea of the product or service your business provides, you also need an in-depth understanding of exactly how the delivery will be carried out and what terms must be set on both sides of the transaction. When you have your contracts nailed down, both in terms of the language you want to use to outline expectations and liabilities as well as the timeline of the transaction and client relationship, it becomes much easier to avoid potential risks that can lead to litigation.
How Contract Analytics Improve Business
As the lifeblood of a company, contracts have the potential to provide huge boosts in revenue and overall workflow output when properly analyzed and subsequently renovated. Any CLM tool that you purchase needs to be equipped with contract analytics software. The data gathered by a contract management tool highlights areas in the language of your contracts as well as the overall contract process where changes can be made that will reduce potential risks, speed up transactions, and increase revenue.
In the midst of any business relationship, no matter what field or industry, there is always the possibility that something could go wrong. Of course, some industries garner more risk in their transactions than others, such as businesses that deal with insurance. In these cases, contract sections that detail what will happen in the event of a mistake or breach of contract on either side may need greater attention. But in general, regardless of what product or service you sell, you can benefit from improving the areas of your contracts that handle liabilities.
CLM tools can help with these improvements by analyzing the language of your contracts, both current and past. With a backlog of data from past contracts on hand, contract analysis software is then able to take the language of a new contract and compare it with past ones in order to find deviations from standard procedures that may otherwise go unnoticed. Locating and eliminating discrepancies in the contract language lowers the amount of risk involved with closing that deal, as it avoids the potential for small mistakes that can lead to litigation.
A CLM software may also be able to provide you with risk scores. Risk scores are a way of speeding up contract processes and lowering risks by freeing up more time for the legal team to focus their attention where it is needed the most. For example, let’s say you have your CLM software analyze three new contracts for potential risks. This analysis entails comparing the language of the current contracts to that of past ones in order to locate deviations in the standard procedure. The tool then uses this data to generate a score that reflects the level of risk associated with each contract. If two of the three contracts end up with low scores, then the legal team can spend less time reviewing them and focus more attention on tending to the contract with the higher risk score. Thus, the legal department can work much more efficiently.
Speed Up Processes
Increasing the efficiency of your contract processes should be a top priority for any business in any industry for two main reasons. First, processing contracts at a quicker rate allows your company the extra time to complete more transactions throughout the year, leading to a boost in sales. Second, a faster contract process generally results in a more ideal customer experience than a lengthy, convoluted process. If there are tons of obstacles barring the path or hoops that need to be jumped through on both sides for the deal to reach fruition, customers will be less likely not only to do business with your company again, but also to recommend it to their peers. Peer recommendations represent a huge aspect of expansion in many industries, so prioritizing customer experience is essential.
CLM tools help to speed up your contract processes by analyzing past transactions to pinpoint aspects of the process that cause delays and potential areas that can be automated. Once delays have been pinpointed, you can find ways to eliminate them along with any unnecessarily repetitive parts of the process. Automating certain steps acts as an added boost of speed by reducing the amount of hands-on labor required and freeing up time for the legal team to devote their attention to more pressing matters.
And of course, faster processes naturally leads to greater revenue as well. It’s pretty obvious how increased revenue benefits your business, as building profits tends to be the overall goal along with customer satisfaction. But having a larger amount of wealth behind your business allows for expansion, improvement of products, higher employee salaries, and many more additions that make your work environment more enjoyable and your product better.
Aside from simply speeding up processes and increasing the efficiency of your contracts, CLM software can also increase revenue by pinpointing aspects of the contracting process that either renew the cycle or generate another transaction. For example, your CLM tool keeps track of automatic renewal dates for contracts. If you are aware of when a renewal date is approaching, you can set aside time to figure out whether any details of that contract need to be renegotiated before the renewal arrives. In this way, you can adjust the contract to accommodate any fluctuations in that particular customer relationship and potentially add on or delete certain terms in order to increase revenue or cut costs.
Contracts represent the largest and most valuable untapped resource in just about every company. Utilizing CLM softwares allows you to finally take advantage of the wealth of knowledge hidden inside the language of these contracts. And, armed with a deeper understanding of your transactions and customer experiences, you can take steps to refresh your business and start making strides into innovation and expansion that could take your company to new heights.