Risks are an integral part of any legal agreement. But how can they be reduced or even controlled?
In this article, we give you our top 7 tips!
Best practices to control contractual risks with contract management software
Risk factors related to contracts
What are the important risk factors to consider on a daily basis when managing your contracts?
→ access to contracts by the wrong people
→ unauthorised access to contracts by certain teams/persons
→ non-compliance of certain contracts / clauses
→ non-compliance with contractual obligations
→ missed renewal dates and therefore tacit renewals that recommit us by default
How can these risks be reduced?
Legal teams mitigate contractual risks by including specific clauses: indemnity clauses, liability clauses, insurance clauses, termination clauses, warranty clauses, limitation of liability clauses, etc. These manual methods are a first step in protecting your contractual data.
But how can you go further? A Contract Management solution (also known as CLM) can greatly facilitate risk management, thanks to numerous adapted functionalities!
💡Good to know: Also known as contract management software, a CLM is a turnkey solution that allows companies to optimize each stage of their contract lifecycle and track their contracts on a daily basis in an automated manner. The key is just that: automation.
With such a tool it is possible to: centralise contracts and clauses in a dedicated library, search for contractual information, generate a contract, comment on it and annotate it, sign and validate it, but also monitor commitments, store the entire contractual database, create reminders on deadlines, monitor contractual activity using dashboards and KPIs...
Here are 7 contract management software features that allow you to mitigate contractual risks by automating various tasks and centralising all your contractual data.
1) Don't miss any more deadlines with alerts and notifications
Missing deadlines orhaving contracts renewed due to tacit renewals often has serious financial consequences. And the worst thing is that all this can be avoided with the right contract management software!
With such software, you can set up automatic alerts and tasks on all your contracts. At each stage of your contract's life, you will be notified of what you have to do.
2) Decide who can access contracts through fine-grained user management
Some contract management software offers role-based permissions.
For example, they allow a person to read, modify or validate certain types of documents, confidential information or contracts. But access to other contracts, which it would be useless or dangerous to consult or modify, is forbidden.
3) Protect contractual data with encryption
Another key to protecting your contracts against the risk of unauthorised access - especially from outside the organisation - is to encrypt all data in your documents.
Some contract management software encrypts information at rest and in transit using the latest encryption standards.
👉 Data at rest refers to all data stored in your Contract Management solution.
👉 Data in transit refers to all data sent externally to or from your Contract Management solution, to a user, or another application.
👀 Read also: ISO/IEC 27001:2013 for dummies
4) Improving compliance with clause libraries
Non-compliance is one of the most well-known contractual risks. Some CLMs offer you the possibility to create clausiers. Also called clause books, they serve several purposes:
Create template clauses
Legal teams can create templates of clauses that can be easily incorporated into contracts. These templates serve as reference clauses, and can be easily compared to other clauses within your contracts stored on your CLM.
Compare the clauses of your contracts with your standards
You are alerted if the clauses of an external contract are too far from your own clauses. Our proprietary artificial intelligence shows you the risky clauses directly in the contract, as well as the level of risk.
5) Improving compliance with model contracts
With a CLM, you can create standard contract templates and share them easily with operational staff. As soon as you update a contract, everything is synchronised in the platform.
This prevents legal departments from being asked questions such as: where is the template stored? Is this the version I should use? Could you transfer the new template to me?
6) Avoiding mistakes during the negotiation phase
During the negotiation phase, when several people are working on the same contract, mistakes can happen! And it's human: sometimes, certain changes or comments are forgotten, or the wrong copy of the contract is used...
With a CLM, the management of different versions of contracts (also called versioning) is handled automatically. In addition, you can import the versions you wish to keep yourself.
7) Set up internal validation workflows
Have you ever forgotten to put certain people in the contract validation email loop? Or have you had to chase up the right validators again and again who, caught up in the time, did not agree to send the contract for signature?
By digitising internal (or external) contract approvals, you can say goodbye to the endless back and forth.
A feature called "validation workflow" allows you to make sure that :
It is always the right validators who are put in the loop. Example: for any sales contract over 5,000 euros, the financial director should validate the contract.
The contract is validated. The financial director will be automatically reminded by email as long as the contract has not been validated.
Points to remember to control your contractual risks:
Streamline and automate the management of your contracts.
✔️ Centralise all your contracts and contract data in a secure, easy-to-use, cloud-based repository.
Draft negotiation-ready contracts faster with libraries of contract clauses and templates.
Collaborate in real time, automate versioning and electronic contract signing...
Automate validation workflows and alerts to improve efficiency and contract compliance.
Conclusion? With a CLM, you can finally forget about your contracts and who knows, maybe they will think of you...
Want to see our solution in action?
Safety is our hobby, so we also recommend :
- Security: why protect your contractual data?
- What is compliance?
- How can you protect your contract data in the cloud? Decryption.