When it comes to protecting your company’s interests, contract optimization is key. But what does it mean to optimize your contracts? And how should you go about it?
This Juro guide explains everything you need to know.
What is contract optimization?
Contract optimization means making conscious improvements to your contract management process to reduce contract risk and increase contract value.
In other words, contract optimization has the aim of making your contracts as effective and frictionless as possible. This enables you to gain more value from your contracts, either by maximizing the opportunities they present or by reducing the risks that they carry.
There are two main opportunities to optimize your contracts:
- By improving the content within your contracts
- By improving the process you use to manage your contracts
Read on to find out exactly what these opportunities look like in practice.
How to optimize your contracts
Optimizing your contracts usually involves choosing the best contract terms and negotiating terms that favor your business. However, it also involves removing bottlenecks that make the contract process more expensive, or less efficient.
There are a few different ways to do this, and we’ll run through them together now.
1. Engage with other contract stakeholders to agree optimal terms
One of the best ways to optimize contracts is to get other contract stakeholders involved in the drafting process.
If you’re lucky enough to be drafting a contract on your own paper (rather than using a third-party contract), then it’s a good idea to consult with other teams to find out what they want from the contract.
This means discussing budget restraints with finance, for example. It could also mean consulting with legal about which terms are required to reduce contractual risk. Whoever it is, if someone has certain interests in the contract, you should take the time to understand these interests and how you can protect them in the contract authoring process.
The only problem with this is that consulting with other teams when creating a contract is time-consuming, and it distracts them from higher-value work if you lean on them too much.
Fortunately, there are ways for other teams to retain control over the terms of a contract without having to get involved with drafting each contract. In other words, you can automate the process of contract optimization. Here’s how.
When using a contract automation tool like Juro, teams can standardize the clauses within a contract using an automated contract template. This template will set out the pre-approved terms for a contract, meaning that the contract owner only needs to populate the contract with the remaining data.
Juro also empowers legal and business teams to set up conditions within contracts using a feature called conditional logic. Don’t worry. It sounds more complicated than it is.
Basically, Juro users can set rules for each contract template whereby certain terms are added to or removed from the contract if certain conditions are met.
Imagine that the legal team wants to include a limitation clause if the contract is over a certain value. Rather than asking the legal team to draft this clause each time the contract meets this threshold, Juro users can automate this process.
If the contract value is stated as over a certain threshold, the terms automatically appear within the contract, meaning you don’t have to lean on or wait for legal to do this work manually.
For particularly high-value or high-risk contracts, you may even want to set up an approval workflow to ensure that contracts get reviewed by a second pair of eyes. Again, this is made simple for Juro users.
Juro users can set up approval workflows to automatically apply to certain contract templates, or they can automate them so that they apply when contracts have a certain value or are based in a certain jurisdiction, for example.
Either way, approval workflows are an effective way to ensure contract optimization is it guarantees that contracts don’t fall through the cracks.
2. Negotiate contracts effectively
Another opportunity for contract optimization occurs during the contract negotiation phase. During this stage of the contract lifecycle, legal and business teams have the opportunity to try and make the contract terms more favorable.
There are a few ways you can ensure that this process goes smoothly. One of the most obvious things is to actually prepare for the negotiation. However, another way is to make the contract negotiation process is efficient and free from friction.
Having a great contract management system in place is great for this. Not only does it make it easier to redline contracts, but it also makes it far easier to track which changes have been made in a contract, and to discuss these changes with counterparties in real-time.
Unlike in a manual contract workflow where contracts are created in Word, saved, emailed over to counterparties, downloaded back into Word for redlining, and later shared back and forth across email until both parties agree, Juro enables users to negotiate contracts all in one platform.
This eliminates the risk of poor version control and improves the security of contract negotiations since all of the edits are tracked using a detailed contract audit trail. It also means that parties can accept and reject redlines with ease, making it quicker to negotiate contracts.
3. Manage existing contracts
Contract optimization doesn’t end once a contract has been signed. Even once you’ve signed the contract (in wet ink or using electronic signatures), there are ways to ensure you gain the most value from your contracts.
Firstly, you can review existing contracts and use the contract data within them to inform your future contracts.
Ask yourself: what has worked in the past, and what hasn’t? Have there been any instances where you could’ve reduced contract risk but didn’t? Did certain terms create friction in contracts previously? What can you learn from these experiences?
Contract tools like Juro make it quick and easy to audit contracts. Juro users can search through thousands of contracts stored in their contract repository using OCR functionality. This means they can access their contract data in a matter of seconds.
Legal and business teams can also optimize their contracts post-signature by keeping up to date with contract deadlines. It’s extremely common for businesses to miss automated renewal dates and end up paying more than they expected for longer than they expected.
For example, Juro users can set automated contract reminders for upcoming contract renewals and obligations. This means you’ll never have to miss a contract renewal deadline again. It also helps you keep on track of your customers’ upcoming renewal deadlines, which enables you to nurture these relationships better.
What are the benefits of contract optimization?
As you’ve just heard, there are plenty of ways to optimize your contracts. But what are the benefits of doing so?
1. Cut unnecessary costs
One of the most obvious benefits of contract optimization is that it prevents your business from accumulating unexpected costs from contracts. A great example of this is preventing missed contract renewal deadlines to ensure you’re not locked into paying for a service for longer than you need it.
But contract optimization also helps your business increase revenue, too. This can be achieved by drafting more advantageous contract terms to begin with, and by negotiating contracts more effectively to gain the best outcome possible.
2. Reduce contract risk
Another benefit of contract optimization is that it helps to reduce contract risk. By optimizing your contract process to ensure that contracts are standardized and receive the right level of scrutiny, you can identify any potential risks within a contract and work towards eliminating these.
Using contract approval workflows is a perfect example of this. For higher-value contracts that carry greater risk, it’s even more important to have a second pair of eyes to review the contract. Automated approval workflows provide this safeguard and help to ensure these risks are identified and addressed before the contract gets signed.
3. Preserve your commercial relationships
Contract optimization is also essential to preserving the relationships you have with your clients. Commercial contracts between two businesses need to have terms that favor both parties fairly. Without these, the relationship could be short-lived.
If you’re a scaling business, you’ll know how important long-term relationships and expansion can be for your company’s growth. Contract optimization gives you the best chance of maintaining these relationships in years to come.
Optimize your contracts with Juro
Juro’s all-in-one contract automation software enables all teams to streamline the creation, execution, and management of routine contracts at scale. This makes it far easier to optimize your contracts and reduce contract risk.
To find out more about how Juro can improve your contract workflow, fill in the form below.