Risks are an integral part of any legal agreement. But how can they be reduced or even controlled?
In this article, we share best practices for contract risk management.
Contract risk factors
What are the most important risk factors to take into account every day when managing your contracts?
What are the best practices for contract risk management?
Legal teams mitigate contractual risks by integrating specific clauses: indemnity clauses, liability clauses, insurance clauses, termination clauses, warranty clauses, liability limitation clauses, etc. These manual methods are the first building block in protecting your contractual data. These manual methods are the first step in protecting your contractual data.
But how can you go further? A Contract Management solution (also known as CLM) can make risk management a whole lot easier, thanks to a host of tailored functions!
Good to know: Also known as contract management software, a CLM is a turnkey solution that enables companies to optimize every stage of their contract lifecycle and monitor their contracts on a daily basis in an automated way. The key is just that: automation.
With such a tool, you can: centralize your contracts and clauses in a dedicated library, search for contractual information, generate a contract, comment on and annotate it, sign and validate it, as well as track your commitments, store your entire contractual database, create reminders on due dates, track your contractual activity using dashboards and KPIs…
Here are 7 contract management software features that help you mitigate contractual risk by automating various tasks and centralizing all your contractual data.
1) Never miss a deadline again with alerts and notifications
Missing deadlines, orhaving contracts renewed by tacit agreement, can have serious financial consequences. And the great pity 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 every stage in the life of your contract, you’ll be notified of what you need to do.
2) Decide who can access contracts thanks to detailed user management
Some contract management software offers role-based permissions.
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 unauthorized access – particularly from outside the organization – is to encrypt all your document data.
Some contract management software encrypts information at rest and in transit, using the latest encryption standards.
Good to know: At a time when companies are dematerializing, security must be one of the main criteria when choosing a solution. DiliTrust has obtained ISO/IEC 27001:2013 and its privacy extension ISO 27701:2019. This international certification is widely recognized in the field of information security.
4) Improve compliance with clause libraries
Non-compliance is one of the best-known contractual risks. Some CLMs allow you to create clausiers. Also known as clause collections, they meet several objectives:
Create clause templates
Legal teams can create templates of clauses that can be easily integrated into contracts. These templates serve as reference clauses, and can be easily compared with other clauses in your contracts stored on your CLM.
Compare your contract clauses with your standards
You are alerted if the clauses of an external contract are too far removed from your own clauses. Our proprietary artificial intelligence indicates the risky clauses directly in the contract, as well as the level of risk.
5) Improve compliance with model contracts
With a CLM, you can create standard contract templates and easily share them with operational staff. As soon as you update a contract, everything is synchronized in the platform.
This prevents legal departments from being asked questions such as: Where is the template stored? Is this the version I need to use? Could you send me the new template?
Plus: our DiliTrust solution connects to all business software such as Salesforce, Hubspot or Word, so you can create contracts quickly and easily from the data contained in these tools.
6) Avoid mistakes during the negotiation phase
During the negotiation phase, when several people are working on the same contract, mistakes can quickly happen. And that’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 contract versions (also known as versioning) is handled automatically. You can also import the versions you wish to keep.
7) Set up internal validation workflows
Have you ever forgotten to include certain people in the contract validation email loop? Or had to re-send, again and again, the right validators who, bogged down in time, didn’t agree to send the contract for signature?
By digitizing your internal (or external) contract approvals, you’ll be able to say goodbye to those interminable back-and-forth processes.
A feature called “validation workflow” lets you be sure that :
The right validators are always brought into the loop. Example: for all sales contracts over 5,000 euros, the CFO must validate the contract.
The contract is validated. The CFO will be automatically reminded by email until the contract is validated.
Retain these best practices for contract risk management
✔️ Streamline and automate your contract management.
✔️ Centralize all your contracts and contract data in a secure, easy-to-use, cloud-based repository.
✔️ Draw up negotiation-ready contracts faster, thanks to clause libraries and contract templates.
✔️ Collaborate in real time, automate version management and electronic contract signing…
✔️ Automate validation workflows and alerts to improve efficiency and contract compliance.
With a CLM, you can finally forget about your contracts. By following these 7 best practices for contract risk management, you’ll have more time for your important projects, and spend less time on manual tasks.
