What Is Contract Value Leakage And How To Prevent It

Introduction

When you sign a contract, you expect to get as much value from that agreement as possible. Yet, too often, those expectations remain unmet, keeping money out of your pocket and stunting revenue over time.

By being more aware of this issue—known as contract value leakage—you can proactively set up processes to gain every benefit possible from every agreement you sign.

Keep reading to see where you could be losing value through your contract lifecycle and how to prevent that loss to maintain a solid bottom line.

Understanding the Why Behind Contract Value Leakage

Contract value leakage occurs when the actual value you’re getting from a contract does not measure up to the value you expected to get. Value leakage can occur before or after signature but leads to financial loss either way.

As time goes on and more contracts suffer from value leakage, the organizations lose revenue, teams miss new opportunities, and employees can feel the sting of bad business.

What Causes Contract Value Leakage?

To address issues and avoid future losses, you first need to know where you could be experiencing contract value leakage. Some of the most common areas of weakness include:

Poor Contract Quality
Contracting Costs
Performance Failures
Disagreements Over Scope
Inefficient Contract Management

How to Prevent Value Leakage to Protect Revenue

Now that you know leakage happens, let’s look at how to stop it. If you take certain precautions and apply the right processes, you can stop value leakage in contracts before it happens and prevent future losses. Here a few recommended steps to take:

1. Know What You’re Agreeing To

When parties draft contracts, they use language designed to support their interests—but consider how often everyone involved understands the outlined terms.

Confusion about contract clauses leads to value leakage. Avoid this by performing all contract drafting and negotiation in a collaborative environment where parties can clearly present their interests and gauge the full scope of the contract.

2. Develop Efficient Contracting Processes

When business demands speed and efficiency, poor contracting processes quickly lead to value leakage. Consider whether your processes have room for improvement, whether it’s limiting the number of parties involved in contracting or shifting resources to higher-value contracts.

The more efficient your contract management processes, the better you can process your business against value leakage.

3. Put the Contracts in Front of the Right Eyes

Legal and finance teams shouldn’t be the only ones who see a contract before it closes. Other teams executing on the terms can provide greater insight that avoids contract value leakage and potential conflict.

For example, if there is a contract for a new technology solution for the marketing team, have the CMO look at the agreement to ensure the language and scope meet their expectations. Having the right people involved in contract review ensures the terms meet industry-specific requirements and revenue is maintained moving forward.

4. Keep a Sharp Eye on Deliverables

One of the most common areas for value leakage in contracts is in the deliverables. Losses here typically happen because organizations lack an efficient way to manage obligations. After all, there’s no way teams can accurately track the deliverables manually within thousands of contracts.

Implementing a solution that tracks obligations and alerts you in the event of unmet terms can help you ensure you get the full value of all your agreements.

5. Invest in a Strong CLM Solution

As business evolves, you need a way to efficiently and accurately track your organization’s agreements through the entire contract lifecycle and avoid value leakage.

A strong contract lifecycle management solution gives you the power to expertly:

House all your agreements in a single digital repository
Track changes throughout the negotiation process
Manage contract obligations through the entire life of the contract
Gather and use key analytics to maintain contract value and improve processes

AI Stops Value Leakage Before It Happens

While your standard CLM platform gives you a “good enough” solution to improve contracting, artificial intelligence delivers the speed, efficiency, and insight needed to create real impact within your business.

AI powers your CLM processes by improving:

Authoring and Negotiation – Minimize contract risk with AI-suggested standard clauses and negotiate faster as AI spots missing or unaligned clauses.
Obligation Management – Track outcomes in real-time, automate obligation schedules, and enable auto-validation of service levels.
Contract Analytics – Extract hundreds of critical data points and generate a steady stream of intelligence to improve governance.

Through the power of AI, you can improve contract management and establish more efficient processes that protect against value leakage.

Get All Possible Value Out of Your Contracts

Contract value leakage doesn’t have to be inevitable. With the right processes in place, supported by strong technology solutions, you can ensure you’re crafting contracts that support your business goals and squeeze every dollar possible out of agreements for a better bottom line.

Ready to streamline contract drafting and better track obligations to ensure full contract value? Contact our team to see how you can use Sirion’s advanced applications to accelerate your contract lifecycle journey.

Additional Resources

Contract Management