Bad Contracts: 5 Risks You Didn't Know Exist

Topics: Contract Management, Legal

Here at SpringCM, we deal with contract management everyday.

By getting down in the trenches with contracts, we have become well-versed in the risks associated with them. There are plenty of common contract risks that we find most companies are aware of, but there are some that always seem to surprise stakeholders.

Here are five contract risks that you didn't know exist.

1. Agreeing to unknown terms 

This is a big risk that often gets overlooked. Contracts are complicated documents that need to be reviewed properly, and when there isn’t a solid review process in place, the terms may be overlooked. This can leave you in a weaker position going forward. risk

2. Auto-renewals

This one can affect both sides of the contract process. If you are the customer and you do not have a solution that sends reminders when contracts are about to be renewed, you can be on the hook to pay for a software you may not have a need for anymore. If you are a vendor, you may lose revenue if you don’t have a reminder to kick off the renewal process with your customer.

3. No audit trail

Too many companies think they will just deal with an audit when it happens, not enough plan ahead of time how to make sure the auditor (internal or external) has the information needed. If there is an issue with a contract, knowing who made a change, what change they made and when they made it is a huge safety feature.

4. Obligation management

Many times contracts will have obligations or milestones built into them that one side needs to meet. If these obligations aren’t met, the terms of the contract may mean that the revenue you collect from that deal is less than expected. Being able to effectively track these obligations allows you to better project your revenue for the upcoming quarter.

5. Blind Spots in your approval process

Speaking of revenue forecasting, not knowing which deals are going to close in the current quarter and which ones may need some additional time is a huge risk for a business. For example, say your projected revenue for the current quarter is $10M. Knowing this, you plan on hiring more sales reps and invest heavily into new marketing campaigns. Then at the end of the quarter, you realize that you have a $2M deal that is stalling and won’t be completed until the next quarter. This lack of insight into how the deals are progressing is obviously a huge risk for businesses.

Now it’s your turn - are there any contract risks that we missed? Let us know in the comments down below!

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