Lately the UK economy seems to teeter – not quite in recession, but never far enough away either. GDP data shows growth flip-flopping between positive, negative, and the occasional flat month, since the post-COVID upswing levelled out. This causes major challenges for businesses in planning for investment and growth. Such hesitancy has a knock-on effect for the wider economy, ultimately feeding into this ongoing up-and-down trend.
Slashing expenses in uncertain economic conditions is an immediate and effective solution to freeing cash and strengthening business resilience. And within this, a key area for entrepreneurs and business owners to examine is existing contracts, and the potential clauses that are draining funds that could be better spent elsewhere.
Trim the fat
Removing formerly hidden contract costs can help you save costs related to printing, sending and storing agreements, which may add up to around $36 per agreement. One G2 reviewer said DocuSign saves their logistics firm $50,000 a year from courier costs! But to see these savings means working through contracts with a fine-toothed comb. Getting legal advice is pricey and can take away the profits the aim was to save.
No one wants to cause more problems or waste time in back-and-forth communications about contractual obligations that won’t ultimately result in a beneficial outcome, so gaining certainty before taking action is critical. The problem is that contractual clauses not in your favour can directly cost money or require extra time or effort which comes out of your profit margin. There may be mistakes, parts may be out of date, or both the business and the other party may have evolved and outgrown certain aspects that used to make more sense.
For example, changed regulations or a steep rise in the cost of materials. On that note, a recent government ‘Monthly Statistics of Building Materials and Components’ report detailed how the cost of materials has risen very steeply in the past three years than they did over the previous decade to 2020. Any existing contracts may well be destroying profit margins and can be reviewed for fairness.
But reading, understanding, and working through the meanings and effects of contracts can be daunting. Yet entrepreneurs can trim the fat from contracts cost-effectively in-house, with a little help from technology.
Uncover the clauses of interest, then act
Even small businesses can use automation, often powered by tested and safe AI solutions to summarise and simplify contractual information. This helps business decision-makers to better understand their agreements and stay informed of key dates, actions, amounts and clauses that impact them. The power of such assistance is seen in the time and confidence given back to entrepreneurs who can then make quick and confident decisions that add-up to savings and growth.
AI in the context of agreement solutions uses natural language processing, machine learning, semantic indexing and a logic engine created for the purpose. These are created by lawyers and experts in applying AI to contracts. This allows the AI to extract terms from contracts, conduct deep analysis to understand their significance, and suggest next steps.
AI solutions can quickly uncover the contracts you’re looking for, even helping when you’re not sure of the right words to search for. So, if there’s an urgent issue surfacing from a supply chain vulnerability, a few clicks can show the context and highlight the relevant terms – and indicate what is and isn’t in your favour.
Then, armed with the knowledge of the aspects ripe for amendment, you stand in the best place for renegotiating payment terms, such as discounts for early payments, improving cash flow and reducing financing costs.
Don’t be caught out
If the contract has not ended, you’re asking for an amendment. You’ll need to communicate a clear reason for seeking to alter the existing agreement, ideally looking to show a win-win situation. Draft the proposed amended terms and allow the other party to examine and respond to their acceptability.
Note the terminology used: Amendments are for when organisations want to change the terms of the original contract. Addendums are for when an additional term or clause is added to the contract. And don’t be caught out by trying to amend an expired contract. For example, where something is behind schedule but still outlined with a fixed expiration date in the contract. That’s when you need a new contract.
And if you still have paper contracts, it’s time to go digital, else the power of modern solutions like AI will not be able to be deployed effectively. Look at the following issues when deciding how contracts and agreements work in your business:
- Time: Track how long it takes for an agreement process. It can take minutes rather than days or weeks when digitised.
- Cost: Simplifying and automating the process removes human effort, time, and cost.
- Gain customers: If you can deliver a faster, more straightforward experience, customers will notice.
- Compliance: Digital systems offer greater confidence to locate copies and keep them secure, up-to-date, and legally enforceable.