Madrid, Aug 1, 2023 – You may have thought that there are more types of risks today than ever before. How is this possible? Did they exist before, but we didn’t notice them? It seems that risks spontaneously appear around us and we rush to classify them, in the hope of knowing them better and mitigating them.
Today we will be covering contractual risk, that omnipresent risk in all companies. It is everywhere: in Human Resources departments, which manage employee contracts; in Sales departments, which close deals with new customers; in Procurement departments, which contract the services of external suppliers. They all handle contracts, which means that the risk arising from these legal documents must be properly managed.
What is contractual risk?
Contractual risk is defined as the possibility of facing financial losses or other penalties related to the breach of contract, which implies going to court to pay acompensation for the damages caused.
Contractual risk is, in turn, composed of risk subtypes like:
- Execution risk: the possibility that contract obligations will not be fulfilled.
- Economic risk: when one of the parties breaches the economic conditions, for example, the remuneration for the provision of a certain service, or when the breach of contract entails an expense for the party in breach of contract to repair the damage caused by the breach of the other party.
- Reputational risk: due to a bad relationship with third parties or low morale on both sides.
CLM (Contract Lifecycle Management) makes it possible to address contractual risk and exercise real control over the legal documents that are part of a company’s day-to-day business. No company is free from managing contracts. They are as inevitable as they are sensitive.
Contracts are inevitable because they are essential to formalize, record and move towards the company’s objectives, and sensitive because if we do not pay the necessary attention to them, the company can find itself in dangerous situations for its continuity and good progress.
Danger approaches from several fronts:
- Clarity of wording –The truth is that the vast majority oflegal departments are overloaded with work, and this reduces the time they devote to reviewing each contract. In addition, it is necessary to use clear language that does not give rise to interpretations.
- Dynamism –Contractual risk extends over the entire life cycle of the contract. It is not enough to pay attention at a given moment in the process and then relax. Contracts are alive and exposed to multiple views and modifications.
- Contract models –Choosing the contract model is the first step that involves a risk for both parties, since it may not meet the needs of either party or contravene current legislation if it is not up to date.
CLM technology as an ally against contractual risks
Contract Lifecycle Management solutions help companies in all industries mitigate contractual risk at different stages of the contract lifecycle. And they do this in five ways:
1 – Real-time updating –Contracts must always comply with current legislation and be adapted to the corresponding regulatory environment. In addition, if a clause applicable to hundreds of contracts needs to be updated or modified, it is no longer necessary to do it one by one.
Contract Lifecycle Management automates this process and allows changes to be made to all contracts at the same time, thus saving time, costs, and errors.
2 – Centralization –CLM makes it possible to control the different versions of the contract and store them all in a single platform in the cloud. It also centralizes knowledge so that there are no documents scattered throughout the company.
3 – Access control – Contract Lifecycle Management helps control who can access contracts by managing permissions according to the needs of each work team or department. It also allows defining who can read or edit contracts so that they cannot be read or edited by unauthorized persons.
This minimizes the risk of a security breach and unauthorized access to confidential information, so common in contracts.
4 – Decentralization of generation – Legal Affairs can analyze the types of templates used in the company and convert them into a smart form with zero-code technology. In this way, the rest of the employees have them centrally available in the cloud and can create contracts by completing a simple form with all the options previously established by the Legal Affairs area.
With a single click, employees in any department get a tailor-made contract with the full assurance that it meets the standards set by corporate lawyers.
5 – Tracking alerts – Contract Lifecycle Management allows viewing contract status, for example, pending validation, sent for signature, signed, or pending renewal. The system sends alerts to our future self so that s/he does not forget the most important milestones of the contract.
In addition, through a dashboard that includes a filtering system,we can visualize which alerts we will receive in the coming weeks, months, etc.We can also see which contracts are expiring, which ones need to be reviewed and generate reports to keep everything under control.
CLM technology and document management
Contract Lifecycle Management software and technology improve and boost document management in companies, especially in legal departments. Theyeliminate the traditional manual interventions in the contract generation process and, with them, the usual errors in the drafting of the contract, in its communication or in its signing.
By automating the entire process, CLM software ensures the document preparation is accelerated, ensuring that no business opportunity is missed,and contractual risk is mitigated. This risk is a constant featurein all companies, so mitigating it becomes an obligation to ensure the security of the company.
About DocPath
DocPath is a leading enterprise document software company that offers its international customers the technology that allows them to complement their ERP and implement advanced Document Output Management, Customer Communications Management and document software pooling processes.
Founded in 1993, DocPath is based in Europe, USA and Latin America and is present with its Solutions in companies around the world. Among its customers there are prestigious banks and top-tier corporations, facilitating the difficult and complex task of designing, generating and distributing their business-critical documents. DocPath keeps a strong commitment to R+D+i, an area to which it allocates a large part of its revenues, and in which lies one of the keys to its success.
For more information, visit: www.docpath.com.
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