A lot of people love Risky Business, the iconic 1983 film with the dare I say even more iconic Tom Cruise romp around the house.
It’s no wonder Roger Ebert called it “one of the smartest, funniest, most perceptive satires in a long time.”
A risky business, on the other hand—one that’s exposed to contract-related risk that could adversely affect business performance, reputation, and valuation—earns an easy two thumbs down from just about everybody.
One of the most common sources of contract-related risk is non-standard language. That’s because agreeing to non-standard language often means agreeing to less favorable clauses and terms—especially when it comes to customer contracts.
As the number of agreements you enter into increases, so does the challenge of managing them, whether it’s keeping track of which contracts contain which language, or else monitoring compliance with an ever-increasing body of bespoke obligations.
How can reporting on standard and non-standard language help reduce unnecessary contract-related risk?
Better balance deal risk and reward.
With greater risk should come greater reward. Auditing all of your contracts to identify non-standard language and the scenarios in which you’ve agreed to it (or are being asked to) will help you decide in which situations the risk is worth it, as well as determining revenue thresholds at which point legal involvement and negotiation of high-risk clauses make sense.
When a prospective customer asks for more indemnity protection, for example, or additional carve outs to limitation of liability, seeing what similar sacrifices have netted you in return can give you a leg up in negotiation.
Better still, when you can show your CEO or CRO that you’re negotiating indemnity on 85% of deals in the neighborhood of $100k but only on 20% of the deals under $50k, you can better resource your legal team by involving legal only on the deals where they’re most needed.
Flag and draft more effective language.
The more contracts you negotiate, the clearer it becomes that some language just works, and some language just… doesn’t. Reporting on standard and non-standard language can help you understand which fallback language gets used most frequently, and how often those fallbacks are accepted.
Have a trusted fallback that almost always passes muster? Maybe it’s time to consider moving it to the front of the line, or else making it the foundation from which to draft a new standard. Either way, that means a lower likelihood of being asked to make concessions.
Anticipate points of contention during negotiation.
When you can see from your entire contract portfolio that a particular clause is more likely to be non-standard than not—and thus, more likely to have been negotiated than others—you can anticipate which clauses may slow down deals.
And when you know where potential deal delays might occur, you can come prepared with a few trusted fallbacks, or else lead with another option entirely. Either way, it’s an opportunity to close sooner, and on more favorable terms.
Plus, you can see how often legal was crucial to seal the deal.
Sometimes, your standard language won’t cut it, and none of your fallbacks will either. When that’s the case, it’s up to legal to close the gap by drafting custom language from scratch. Reporting on standard and non-standard language can illuminate those instances so you can better quantify the value of legal in closing deals and executing your sales process.
After all, some of the best contract drafters “sell” their negotiating position with a combination of creativity, persuasiveness, and a clear understanding of the product or service they’re selling.
(You can read more on how understanding the ins and outs of your organization’s offering can make you a stronger negotiator here.)
Lexion makes it possible
Lexion makes finding and flagging standard and non-standard language across all of your contracts easy, and its AI-powered reminders and reporting help you stay on top of deadlines and obligations—no matter how many contracts you have.
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