3 Hidden Costs of Not Adopting CLM
A contract lifecycle management (CLM) solution supplies capabilities for planning, negotiating, executing, and terminating contracts across every facet of your organization.
Of course, finding the right CLM solution for your organization can seem like a daunting task. One that’s easy to push off to another day.
But have you considered the disadvantages that come from not employing a CLM solution?
If you’re torn about the cost and effort of implementing CLM software, here are some hidden costs you may already be incurring that you may not have included in that calculus…
Incorrect or unwanted contract renewals
As the most logical place to start, contract renewals offer your business a significant opportunity to derive value from your vendors. However, they are easily missed, especially if you don’t have a system in place to ensure you are assessing and/or renegotiating the terms when the time comes.
There are many reasons you may miss a contract renewal, including:
- Lack of a single unified repository to locate contracts
- Employee changes or poor handovers of contracts, causing original key contacts to get lost or relocated
- Lack of accountability for particular contracts
On top of this, manual data aggregation can be unnecessarily complex and tedious. As with all processes, manually renewing contracts also increases the probability of human error, as data could be entered incorrectly or be missing.
How does this turn into revenue loss?
Renewing a contract provides you the opportunity for renegotiation, based on the value it has delivered to both parties in the previous term. This could lead to reduced costs or additional benefits from vendors for your organization. On the other hand, contracts that automatically renew without assessment could cost your organization valuable dollars.
Wasted expertise and unhappy employees
Employees in your legal department provide specialist expertise to the organization. As such, spending their time and talent on administrative tasks represents money being wasted. An effective CLM solution cuts operationals costs and saves staff time by automating and streamlining contract requests.
This results in happier employees, and, in turn, higher productivity. In fact, according to an extensive study by Oxford University, workers are an impressive 13% more productive when happy.
By reducing the time your in-house legal team spends on time-consuming tasks such as contract creation by automating document assembly, your organization will see greater productivity and higher employee morale. Especially after the disruption caused by the COVID-19 pandemic, it’s crucial to ensure your employees are satisfied or risk losing talent.
Side note: A best-in-class CLM solution will enforce your organization’s pre-approved contract language automatically, and provide real-time access to non-legal internal users and third parties for contract review. This saves the legal team from playing gatekeepers to contract queries and requests, allowing them to focus on more meaningful tasks.
Without triggers and alerts, there’s the increased risk of the involved parties missing important milestones, including the aforementioned renewals. But there’s much more risk a CLM solution can help you avoid (or reduce). By providing granular governance of what’s being negotiated, when, and by whom, you have greater visibility into accountability at all stages.
Alerts can also help you manage risk by notifying you of changes in contracts or compliance rules that can incur fees – which can directly result in lost revenue. Alerts can offer you peace of mind, knowing that you are able to mitigate risk amidst rapidly changing regulatory environments, as well as improve compliance with contractual expectations of negotiations.
A capable CLM solution can also identify third-party risks around contracts as a fundamental part of a revenue protection strategy. Using AI, it can provide greater insight into which contracts pose the biggest potential threats to your organization, allowing you to act accordingly and mitigate risk where necessary.
What else can a CLM solution do for your enterprise?
CLM software is designed to lower administrative costs by providing organizational efficiencies. From standardizing contract creation to automating contract lifecycle management, to improving regulatory compliance, CLM can take care of various legal department headaches.
In fact, a KPMG survey found that without close oversight, businesses stand to lose up to 40% of the value they’re contracted to receive from vendors and suppliers.
Offering improved collaboration, increased efficiency, greater control, and less risk, it’s no surprise that other research has shown that a good CLM solution can save companies 9% of their company’s annual revenue.
So in light of the potential costs of not adopting a contract lifecycle management solution, and the sizable benefits it can deliver? It’s no wonder more legal departments are investigating CLM. The hurdle, though, is to pick a solution capable of meeting their real requirements, including rapidly delivering significant ROI while possessing the flexibility and scalability needed to meet future CLM demands.