As contract geeks over at Zeal, we may be biased, but we have good reason to believe that contracts are the backbone of your business relationships. Poor legal document management silently costs businesses an average of 9% of annual revenue through value leakage and cybersecurity incidents. From fraud to operational inefficiencies, this silent drain eats away millions in profit, and unsurprisingly, there’s a high chance that your organization is being affected by them.
The staggering number of areas in which outdated or inefficient practices lead to losses is surprising. As a way to provide some perspective on the issue, here are three of the most preventable, yet costly, document management issues plaguing organizations today:
The Cost of Cyber Attacks and Contract Management
The most quantifiable financial losses from poor contract management come from cybersecurity attacks. While practices such as fraud and value leakage are prevalent, the lack of precise and historical documentation makes it challenging to assign exact numbers to them.
On the other hand, the cost of cyber attacks in the way of data breaches, ransomware attacks, and regulatory fines often come with clear price tags, whether they are monetary or reputational.
Not every cyberattack can be attributed to poor contract management, but legal documents still contain some of the most valuable and vulnerable elements in a company. This paints a picture of how simple solutions could prevent something so impactful.
The Ongoing Cost of Fraud:
The financial impact of contract fraud is often underestimated by several million dollars due to its silent nature. Fraud is ongoing until it’s spotted, and sometimes, accepted as part of everyday operations in industries like banking.
Poor document management opens doors to scams like fake contracts and hidden terms. It’s estimated that in 2023 businesses lost $48 billion due to banking scams.
What makes contract fraud particularly hard to spot is its ability to wear various disguises. Contract fraud is hard to spot because of how many forms it takes. It can involve forged signatures, deceptive amendments, or concealed clauses. Criminals take advantage of the lack of careful document inspection, which often comes from the lack of implemented tools.
The consequences of contract fraud can impact more than everyday operations, damaging reputation, impacting trust, and draining resources. Here’s how a proper contract management tool can help in alleviating the losses that fraud perpetuates:
- Establish clear and consistent contract policies and procedures.
- Use secure and reliable contract management software.
- Verify and confirm contracts and their sources.
- Monitor and audit contract activities and transactions.
- Report and resolve any suspicious or fraudulent contract issues.
This is represented by the loss of potential or expected value from contracts due to poor management practices. Breaches of contract terms, such as oversights or violations, can lead to unnecessary costs and fees. Companies lose an average of 9% of their annual revenue due to value leakage. This means that for every $100 million in revenue, a company could be losing up to $9 million yearly, which is by no means a small sum.
Value leakage can have significant consequences for your business, such as:
- Loss of revenue, profit, or market share
- Damage to your customer satisfaction, retention, or loyalty
- Exposure to legal risks, liabilities, or lawsuits
- Loss of competitive advantage, innovation, or growth
A simple solution to legal document management:
Poor contract management practices are like a hidden hole on a sinking ship. If you don’t put in the effort to find it, you’ll keep struggling to stay afloat. But these three examples are only the tip of the iceberg of the damage that ignoring these issues can cause. The problems organizations face don’t always require overarching structural changes, but the implementation of the right tool.
To prevent and reduce these problems, businesses need to implement effective and efficient contract management tools, such as Zeal.
Zeal is an AI-powered platform that helps businesses create, store, track, and manage their contracts throughout their lifecycle. It offers features such as customizable templates, secure storage, version control, approval workflows, notifications, and analytics. Book a demo here today.