Which Six Key Data Points Businesses Should Extract From Contracts
By Silvério Governo, New Zealand Country Manager & Head of Sales, Australia & New Zealand at Portt, an Advanced Company
Contracts serve as the backbone of any business, regulating interactions with partners, clients, vendors and employees. However, beyond their conventional role, contracts contain a wealth of data that, when meticulously extracted and analysed, can provide strategic business information for any organisation.
In our data driven world, contract data holds transformative potential for organisations that use it to their advantage. Every clause and condition within a contract can provide valuable insights that enhance business operations. Each data point carries strategic importance, offering a comprehensive understanding of business relationships and aiding in effective contract lifecycle management, precise financial planning, performance monitoring, risk management and smooth contract terminations.
The extraction of specific contract data points is essential to many businesses and involves identifying, collecting and interpreting crucial information embedded within contracts and then converting static text into dynamic data that can power strategic decision-making and foster business growth. Many people working in businesses today are time poor and do not allocate enough time and resources to this important task. Here are six of the key data points most businesses should look to extract from their contracts.
1. Identifying Contract Parties
The foundation of understanding any contract lies in identifying the involved parties. It goes beyond mere name recognition; it entails comprehending each party's roles within the contractual relationship. This data point becomes invaluable for risk assessment and fostering effective relationship management, providing insights into the responsibilities and obligations of each entity.
2. Deciphering Contract Dates
Dates within contracts are not mere placeholders; they signify pivotal milestones that need to be carefully navigated. From contract initiation to renewal dates and deliverable timelines, keeping a vigilant eye on these dates is essential for proactive contract management. This ensures timely renewals, prevents inadvertent lapses and supports effective planning and forecasting.
3. Analysing Pricing and Payment Terms
Contracts are inherently financial documents and understanding their pricing structure and payment terms is fundamental. This knowledge aids in budgeting, financial planning and tracking liabilities. It allows for the anticipation of future cash flows and early detection of potential financial disputes, facilitating proactive resolution.
4. Understanding Deliverables and Milestones
Deliverables and milestones serve as critical indicators of contract performance. Tracking these elements enables businesses to monitor the fulfillment of obligations by all parties, identifying potential performance issues early on. This proactive approach ensures the smooth execution of contracts and timely corrective actions.
5. Evaluating Liability and Risk Clauses
Every contract carries inherent risks and liabilities and it is important to note that risk clauses outline the potential consequences for a business if things go wrong. Collecting and analysing this data empowers businesses to understand their risk exposure, prepare for potential scenarios and devise mitigation strategies. This type of proactive risk management can shield organisations from costly litigation and reputational damage.
6. Interpreting Termination Clauses
Termination clauses dictate the conditions under which a contract can be concluded. Understanding these conditions is paramount for managing contract exits smoothly, minimising disputes and preventing unexpected penalties. It also enables businesses to plan for contract renewal or replacement, ensuring the continuity of operations.
The potential fallout for businesses
The repercussions of overlooking critical contract data points can be severe and multifaceted. From missed deadlines and unfulfilled obligations to legal complications and damaged business relationships, the fallout can hinder strategic contract use for business growth and risk management. Therefore, businesses should dedicate resources to effectively extract contract data to avoid these pitfalls.
Contract management solutions
Contract lifecycle management (CLM) software has revolutionised the data extraction process. Using powerful analytics, they provide a constant level of transparency across all contracts, both past and present and all associated evaluation and performance-related data.
Regardless of the contract’s complexities, CLM software allows businesses to automate their processes, streamline approvals and management flow and also capture advanced insights that drive cost out of an organisation.
These tools automate extraction, enhancing precision and efficiency. They scrutinise contracts, identify key information and store it in an organised manner. However, regular contract reviews and updates are essential to ensure that the extracted data remains up to date, reflecting any alterations in contract terms.
When utilised correctly, extracted contract data transforms contracts from legal documents into strategic business tools. These tools guide decision-making, streamline operations, mitigate risks and identify growth opportunities for businesses.
Contract data extraction becomes a strategic imperative that not only drives operational efficiency but also promotes business growth. In essence, it empowers businesses to harness the full potential of their contracts for strategic advantage in a rapidly changing and increasingly competitive business world.