How Automation Reduces the Costs of the Contract Process
No business is immune to monetary losses due to contract management issues. However, when you know key points of the contract administration process where money losses are more likely, you can give them more attention and avoid them, saving your business money in the long run.
JP Morgan’s Contract Management Error
Even large corporations can suffer significant losses from a flawed contract process. Take the JP Morgan case, for example, where they lost over a billion dollars over a clerical error. In 2008 they authorized their law firm to file papers that unsecured most of their loan to General Motors. When GM was prepared to pay off their $300 million financings, JP Morgan’s firm unintentionally included a lien that secured a $1.5 billion loan in the list of security interests that would be terminated after the company repaid their financing.
How other companies can learn from JP Morgan’s contract process mistake
Although not intentional, JP Morgan was taken to court due to this error and was forced to pay back the $1.5 billion. Showing that even the biggest corporations have to pay for the flaws in their contract process. Suppose they had an efficient process that minimized mistakes, they probably wouldn’t have had to pay over a billion dollars because of a simple error that could be prevented.
Like JP Morgan, other companies can also lose a significant amount of money over unnecessary contract process errors, meaning your business should learn from their costly mistakes and improve your contract process.
5 ways the contract administration process can steal your business’s money
1. Contract renewals that pass without assessment or renegotiation represent lost value to the business
Negotiating contractual terms is the best way to get the most beneficial agreement for your company. However, negotiation is often overlooked when it comes to contract renewals, and the conditions are not reassessed. As a result, when your business does not renegotiate during the contract management process, it’s missing out on the opportunity to use the agreement to its advantage.
2. Inadequate obligation tracking
The manual contract management process leaves room to overlook tracking agreement obligations because there are various other steps in the process that you must look after yourself. Not correctly following your commitments and the other party’s obligations will cost your business a significant amount of money through penalties, fines, and not getting the most out of the other party.
3. Specialist resource spending time on non-specialist work
When you hire a contract specialist, they should be doing the advanced tasks that your staff cannot complete, not working to improve your contract management process.
In addition, investing in a specialist will cost your company unnecessary money if they have to perform tasks that can be done through automation. Instead, your specialist should be evaluating the agreement between you and the other company and ensuring that the terms are beneficial and legally enforceable.
4. Loss of company intellectual property or confidential information due to poor documentation access control
Something that costs’s businesses a lot of money during the contract administration process is inadequate security measures. When anyone can access your sensitive information, they can easily steal money from your company, costing you thousands of dollars. Therefore, when handling agreements with private information, it’s vital to ensure it’s adequately protected to eliminate the costs of data breaches.
5. Inefficient sign-off processes
Gathering authorization signatures is a time-consuming process. When you collect everyone’s approval, your business loses productivity, lengthening the contract administration process, and may cost you late fees.
Therefore, when working on an agreement project, the contract management process of gathering signatures should be as quick and efficient as possible, which isn’t always the case when you have to set aside time to meet up with different parties to collect their signatures.
Using an Automated Contract Management Process
What is contract administration process automation?
Agreement process automation uses technology to store, manage, and track all information about agreements. Automating your contractual process will significantly reduce the expenses that come along with CLM practices. Implementing automation practices when your business handles contractual agreements is an investment that will quickly pay for itself and continue to save your business money afterward.
Most of the time, costly mistakes in contract management can be attributed to manual processes. The reason is that manual processes are time-consuming, leave room for error, and do not ensure you’re getting the best terms. By automating your contract management process flow, your business will mitigate the costs resulting from manual practices, making automation a profitable investment.