Contracts serve to reduce business risk. By spelling out your agreement in plain language for all involved parties to read, you can become all but certain that you will benefit from a business relationship.
However, that’s not to say that contracts are utterly risk-free. Indeed, there are four main risks that most businesses encounter during the contract process, and when not properly mitigated, these risks can negate any positives you might have gained from the contract.
Instead of wasting time and energy making major contract mistakes, you should read on to learn about the ever-present risks in contracts and the best ways to combat them.
The first risk involved in the contract process is negotiation because it is during this phase that you might neglect to pursue what you truly want and need, that you might lose value in the relationship you are trying to forge and that you might waste a significant amount of time and resources. Too often, you become an expert at contract negotiation through years of poor negotiation, but that virtually guarantees years of less-than-optimal contract performance for you and your business.
You should understand and practice the rules of effective negotiation when the stakes are low, so you can be sure your most important contracts are perfect from the beginning. When you are less experienced, you should rely on those with more experience to guide you through negotiation — even of those more experienced are your underlings. Finally, make sure you are doing the math at each step of the negotiation to ensure you are getting what you need at the costs you can handle.
Some contracts aren’t worth signing — but are you capable of differentiating these from the contracts that benefit you? Sometimes, the line between good and bad contracts is hair-thin, and if a contract falls on the wrong side, you might be wasting resources in tracking and fulfilling it. This inefficiency can cost you big, especially if more than your share of contracts aren’t great.
Exari’s contract management system is a great solution for reducing inefficiency and ensuring your contracts are of optimal use. Tools like this one will track the content of your contracts as well as the timelines of their execution. This means you can easily compare one contract with another to determine whether you are receiving a comparable benefit, and you can better understand when different milestones will come due, so your business can adequately prepare.
Unfortunately, even with a contract in place, there will always be a risk that the party you are working with fails to deliver on their written promises. In truth, it is impossible to control the actions of an outside party, and it’s more than likely that you will endure at least one non-delivery during the life of your business.
Still, there are ways to ensure peace of mind with regards to delivery of promises. For one, you should keep copies of negotiation conversations as well as drafts of all versions of your contract. In a contract lifecycle management program, these documents can be kept safe digitally, so they won’t be lost when the need arises. What’s more, software will allow you to search relevant documents for keyword phrases to bolster your case. Hopefully, you can use your evidence to get what you want from the other party without legal intervention.
Then again, it is equally possible that you might not be able to uphold your end of the bargain. While you have total control over what you agree to and how you perform, sometimes businesses have higher hopes than they have capacities — the topical Fyre Festival is a good example of this. To reduce this risk as low as possible, you should be realistic during negotiations and avoid signing up for a project that is too big to handle.
Additionally, you can rely on contract management tools to keep you on track. Sometimes, non-delivery occurs not out of malice but rather from disorganization. Software tools can convert contractual obligations into tasks and push these to you and your team in a timely manner. Then, you should have a better chance of fulfilling your promises and hit your deadlines — and avoid costly lawsuits from unsatisfied parties.
Risks exist — there is no business that is totally risk-free. However, by planning ahead, acquiring the right tools and committing to your contracts, you can reduce your risk and gain even greater rewards.