There’s a danger lurking in your company’s documents: mismanaged contracts with forgotten or overlooked terms, which can be easier than ever to fall into due to so many changes and shifts in industries because of COVID-19. Even if you reviewed the contract thoroughly with your team before signing, some details might go under the radar as the weeks since the contract has been signed turns to months which can result in major financial loss. Because of the great amount of time and detail spent on reviewing the contract before the signing, there’s a tendency to not review again unless there’s a problem. The real problem (and potential financial danger) is in this way of managing contracts.
Forgetting to actively manage contracts can have critical financial consequences, and it happens more often than you might think. According to the International Association for Contract and Commercial Management, poor contract management practices can cost companies up to 9% in lost revenue each year.
Why Some Contracts Are Overlooked
One reason that contracts may be overlooked or reviewed hastily (without recording key dates or details) could be due to handling multiple contracts at once. One of the seasons of the year most infamous for contract oversight is the “end of the year crunch” because of the heightened sense of urgency to close deals. More contracts come through the pipeline than usual, which can contribute to the typical haste of Q4, resulting in critical misses.
But no matter how busy the team is, the value of any contract cannot be diminished. IACCM estimates that the average cost of a simple contract is $6,900 and that can escalate up to $49,000 for more complex agreements.
Dangers of Overlooking the Details
Taking for granted that everything which needs to be understood within a contract has actually been managed and documented can pose a financial and legal hazard to the parties involved. Malbek, a cloud-based provider of contract lifecycle management software, has seen plenty of real-life instances of these mistakes and the irreversible damage it can do to companies. Like the classic saying, “the devil is in the details,” there are real threats in what can happen if a business contract isn’t fully read, evaluated, and managed after the signature is reached.
One example is a workforce management company was planning on switching CRM vendors to one that would cost them 30 percent less, but forgot about the auto-renew clause of their existing contract and got locked into another year of service with them.
In addition to losing money, there are also missed revenue opportunities and usage issues when contracts aren’t managed closely.
Double and Triple Check
Matt Patel, the co-founder and COO of Malbek, said, “Contracts are not static documents to throw into a file folder and forget about until something bad happens. Unfortunately, many companies take that approach. For contracts to be truly effective and powerful, they need to be actively managed. Forgetting about renewals, overlooking key obligations, and missing revenue opportunities in your contracts could end up costing you more than you ever imagined.”
His team is helping to solve the problem of general contract oversight by empowering teams to manage their living, breathing contracts instead of treating them as static entities that can be forgotten about. This enables parties to stay on track with contract obligations, upcoming renewal dates, and all pertinent details of the fine print.
Because of the significant financial and legal implications contained within a business contract, it deserves careful attention in order to prevent financial loss. This goes beyond a detailed review of the contract initially, and extends to staying on top of the details in the months and years to come. The consequences of not doing so can be devastating.