We all know that contracts are a major part of business, from vendor agreements to client deliverables, and the stakes are high. Meaning, managing these kinds of documents manually (or with outdated systems) makes it tricky to avoid risk.
This article will dive into the most common contract management risks that could jeopardize your business, plus we’ll provide ways you can prevent them and solutions that will keep your contracts safely moving forward.
Ready? Let’s go!
What are contract management risks?
Simply put, contract management risks are potential negative consequences of contracts being mishandled, misinterpreted, or improperly enforced throughout the contract lifecycle.
When any of these situations happen, your business might be exposed to financial losses, legal disputes, compliance violations, reputational damage, and even cybersecurity threats.
Some symptoms of poor contract management can include:
- Missed deadlines
- Inconsistent contract terms
- Unclear responsibilities
- No version control
- Lack of visibility into contract obligations
All of these symptoms have the potential to escalate, leading to some serious liabilities down the line, which will disrupt your operations and eat into profits.
What are the risks of a service contract?
In addition to defining deliverables, service contracts outline things like performance, timelines, and penalties for non-compliance, making their risks unique. When these elements are left too vague or are not managed properly, all parties can be left vulnerable.
Here are some key risks of a service contract to keep in mind:
- Scope creep: Without clearly defined services, one party might be asked to do more than was originally agreed upon, without the fair compensation to go with it.
- Failed performance: If SLAs are missed or deliveries are delayed without the customer fully understanding these expectations, they will likely be dissatisfied with the provider, especially if penalties are involved.
- Liability exposure: If terms are written poorly, you might be expected to pay for damages or disputes that you didn’t anticipate.
- Termination issues: If exit clauses are too vague, this can lead to surprise contract renewals and even drawn-out legal battles.
When it comes to effective contract management, the goal is to minimize ambiguity and prevent misunderstandings that can be costly. To do this, all expectations need to be clear, measurable, and enforceable.
Most common types of risks in contract management
Let’s talk about the broad categories where most issues arise. Here are the top contract management risks you should know:
1. Financial risks
Inefficient contract management is sure to cost you a lot. Contracts need to have accurate pricing, renewals, and payment terms to avoid significant financial losses.
For example, if you’re missing a renewal window on a vendor contract, that could mean continued inflated fees for services that are no longer relevant.
Understanding obligations and costs will allow you to budget more reliably for improved cash flow.
2. Legal and compliance risks
If your contracts have outdated legal language or don’t comply with regulatory requirements (think: GDPR, HIPAA, or SOX), you’ll be at risk for lawsuits, fines, and even reputational harm. Plus, if there are missing clauses or inconsistent terms around liability or dispute resolution, you’re even more at risk.
A solid contract management system will help you regularly review and update your agreements to make sure they meet the newest standards.
3. Security risks
It may seem obvious, but contracts can contain sensitive business data, personal information, and intellectual property, so safe storage is a must. If these documents are being shared without proper encryption or access controls, you’ll be at risk of data breaches and threats.
A centralized system makes it easier to track who has access and when, so that you can avoid risking important security.
4. Operational risks
Want to avoid service delays, poor performance, or failed projects? Then your teams need clarity on contract terms, responsibilities, and timelines.
For example, a lengthy contract that isn’t properly tracked can hide important delivery deadlines or milestones, leading whoever is responsible to miss it entirely. In the long run, this will damage your customer satisfaction, trust, and loyalty—not to mention it can trigger penalties that could have been avoided.
5. Brand and reputational risks
Wanting to uphold your brand’s reputation is a given. But broken promises, missed deadlines, and publicised disputes are ways to tarnish it.
Clients and partners need to have trust in you to meet obligations outlined in your contracts. When there’s confusion within the document itself, it’s possible they will take their business elsewhere and publicly share their negative experiences.
Bonus: We cover the ins and outs of the common challenges of contract management here.
How to mitigate the biggest contract management risks
Now you know what to look out for, let’s talk about how to avoid contract management risks.
Here’s how you can address the biggest threats:
Establish clear ownership and get visibility into contract obligations
You need to know who’s responsible for each stage of the contract lifecycle, whether it’s drafting the agreement, approving the contract terms, or monitoring ongoing performance. If ownership is unclear, it’s likely you’ll face delays or disputes that will cost you money as obligations fall through the cracks.
Standardize templates and workflows to stay consistent and compliant
Standardized templates, checklists, and automated workflows are key to making sure your contracts are clear, consistent, and legally sound.
Pre-approved templates are a great way to make sure important clauses are up to date so that your business is protected from compliance risks. It also makes it easier to meet internal standards without thinking twice, particularly for complex deliverables like service-level agreements (SLAs).
Use software to assign responsibility and track key milestones
You’re at risk for significant revenue loss if your contract terms aren’t clearly defined or tracked. With a robust contract management solution like PandaDoc, you can easily assign responsibilities and build dashboards to give you a clear view of all your contracts.
Plus, you want to avoid missed renewals and expirations to avoid financial risk. Contract management software helps you set automated reminders and make sure your team doesn’t miss important deadlines.
Use digital, secure contract storage
If you’re storing contracts in unsecured folders or in email inboxes, you’re doing it wrong. This will expose you to data loss and unauthorized access, putting your agreements at risk.
The solution is cloud-based contract repositories with role-based permissions. These can give you better protection and searchability. PandaDoc, for example, simplifies contract management with audit trails and search filters to help you find the information you need quickly.
Want to dive deeper? Check out our best practices for making your contract management successful.
Improve your contract process with software like PandaDoc
Nowadays, it’s too risky to have manual contract management processes, not to mention they are inefficient. The right contract management software should help you:
- Automate and smooth out contract workflows
- Stay compliant with industry regulations
- Keep sensitive contract data secure
- Monitor contract obligations in real time
- Reduce legal, financial, and operational risks
You don’t want to wait until your business is threatened to address the risks, as the consequences of poor contract management are too significant.
PandaDoc can empower your teams to take control of their contracts to reduce risk exposure. Just ask our client, KarmaCheck.
They were managing multiple eSignature tools that required too much manual work and a lot of stress. Once they switched to PandaDoc, contracts were signed quicker and meeting regulatory compliance requirements was easier. Our client ended up saving 20+ hours every week on their contracts!
“As an Ops professional, trusting the tech you bring into a business is everything. It needs to work, scale, and actually deliver results — and PandaDoc has done that on all fronts. If you’re looking for a solution that’s not just software, but a true partnership, you won’t find anything better than PandaDoc.”
– Allie Blech, Director of Operations at KarmaCheck
Ready to invest in contract management software that will make contracts a breeze and keep your brand protected? Request a free demo today.
