The potential for contract risk is everywhere in the contract lifecycle...from missed deadlines to compliance issues and costly errors. Without a structured approach to managing contracts, organizations can quickly find themselves vulnerable to various risk variables that threaten financial stability, operational efficiency, and more. Fortunately, contract management software offers a myriad of tools to identify and mitigate these risks - keeping organizations on track and compliant. To that end, let's explore five common types of contract risk and how leading contract management software can help mitigate them - virtually ensuring smoother operations and peace of mind.
#1 - Financial Risk
The first of the types of contract risk we will manage is financial risk.
Financial risk is the potential to lose money on an investment or business venture. Organizations can see financial risk from value leakage, contract negotiation mistakes, and missed deadlines. Financial risk can result in the loss of capital, reduced cash flows, and diminished profitability.
To combat financial risk, contract management software's standardized templates, auto-redline functionality, and clause ownership/locking can help ensure that you retain the best financial terms when contract execution and signatures occur. Workflow configuration with task alerts can make it so you don't miss a renewal deadline and, instead, have time to proactively report on and analyze financial trends and terms before making a decision on renewal or renegotiation.
You can also manage financial risks associated with vendors and counterparties with contract management software's Dun and Bradstreet integration. Based on the inclusion of D&B account info, you can enjoy the benefits of enhanced vendor and client awareness and financial risk management. Once configured, DUNS numbers and location information can be auto-populated when you add a vendor to your contract management system - as seen via this visually-engaging widget.
Clicking the View Report button expands on this information, allowing you to view:
- Registration Numbers
- Financial Failures
- Financial Delinquencies
- Financial Ratings
- Financial Nordics
- Financial Third Parties
Enhance financial risk assessment and make informed decisions effortlessly!
#2 - Legal Risk
The second of the types of contract risk we will manage is legal risk. Legal risk can come from a breach of contract or failure to observe regulatory obligations.
To avoid breach of contract as it relates to obligations (the delivery of goods and/or services per a contract), you can leverage intelligent workflow automation with key dates and task escalation to make sure tasks are performed on time according to a rules-based sentiment. For managing regulatory risk, you can maximize standard templates and clauses to ensure that language around compliance and regulations is ironed out and understood.
#3 - Security Risk
The third of the types of contract risk we will manage is security risk. A breach of contract data security can result in data leakage, security risk, and reputational damage to your organization.
Leading contract management software is SOC 1, SOC 2, and Privacy Shield compliant - among other security attestations. It also provides you and your users with multi-factor authentication for an extra layer of security when logging into the system. Trusted contract management software also affords you the ability to configure necessary user- and user-group-level permissions down to metadata field and report specificity.
Moreover, contracts can be easily found and stored in contract management software. Leading solutions offer you unlimited storage, and you can search for documents down to the field and term level with saved searches, search history, and "Did you mean...?" functionality.
#4 - Reputational Risk
The fourth of the types of contract risk we will manage is reputational risk. Reputational risk refers to the potential harm to an organization's image or credibility that can arise from failing to meet contractual obligations, working with unreliable partners, or having inadequate compliance practices.
In addition to both the workflow and regulatory compliance features listed above, you can salvage reputations and avoid reputational risk with OFAC integration.
This feature integrates the Office of Foreign Asset Control's national sanctions lists to quickly check if your vendors are associated with foreign states, terrorists, those involved with WMD, those in enemy geographic locations, and others on the SDN (specially designated nationals) list. The lower and greener, the better!
If the vendor does render a higher-than-zero OFAC score with matches, you can view those matches to learn more.
#5 - Operational Risk
The fifth and final of the types of contract risk we will manage is operational risk. Operational risk can arise from daily operational activities, such as errors in data entry, inadequate contract management, or inadequate monitoring of contract performance.
Leading contract management software supports automated data extraction from contracts into a tidy contract record screen with organized metadata fields with a variety of formats. This tool can greatly reduce instances of data entry errors on your team, since contract management software does it for you!
To address inadequate contract lifecycle management, leading solutions - such as CobbleStone Contract Insight® - support you during the whole process - from contract requests to contract renewals and everything in between. Along with the features mentioned throughout this blog, CobbleStone's contract management software allows you to:
- leverage generative AI for proactive contract clause and template generation and risk analysis.
- securely store an unlimited amount of contracts within a contract repository.
- create custom and ad-hoc contract management reports (great for proactive operational risk management!).
- simplify contract search with CobbleStone® QuickSearch.
- increase visibility with contract management dashboards and calendars.
- track contract financials to control contract spend and manage contract budget.
- supercharge contract drafting with pre-approved templates and clauses.
- leverage AI-based contract data extraction, field mapping, and clause matching.
- enhance contract collaboration and contract redlining.
- expedite contract approvals and contract signing with integrated eSignature software.
- these features and many others.
Book a free demo of CobbleStone - The Ultimate Contract Management Software® - today to see for yourself how to manage many different types of contract risk and so much more!
*Legal Disclaimer: This article is not legal advice. The content of this article is for general informational and educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorneys for legal advice regarding any particular legal matter.
