Inflation in the US is the highest it has been in four decades, but a recent study by Zuva found that only 13 percent of contracts reviewed included an inflation adjustment clause. This signals widespread complacency around price adjustment that could translate to a direct negative impact on the ability of a business to stay afloat. Contractual mechanisms to protect businesses against price hikes in supplier contracts while retaining the right to increase customer prices are becoming critical to businesses looking to secure profit margins.
Businesses will need to lean heavily on their General Counsel to drive the underlying contract analysis that will underpin their inflation strategy. Before a business can assess risk, it needs to have an accurate and up-to-date understanding of what its supplier and customer contracts contain, which will govern what it can do.
Analyzing an entire portfolio of customer and supplier contracts manually is time-consuming and resource-intensive. Leveraging technology is the most efficient way to accelerate the initial contract review and enable the legal team to maintain an up-to-date repository of active supplier and customer contracts going forward. Without technology, this sort of review would increase outside counsel spend.
LawVu is a legal workspace that helps in-house legal teams collaborate, work more efficiently and become a high-performing a Connected Legal Function. The new Contract AI Import & Review feature embedded within LawVu is designed to help in-house legal teams review contracts from directly within their legal workspace quickly and easily. The crucial clauses to review are those which regulate price adjustment, allow for termination for convenience, or specify the mechanism for increasing prices.
Make better business decisions with contract management
From within LawVu, legal teams can quickly review material contracts and prepare reports for the wider business to understand and use as a base for decision-making. LawVu becomes an up-to-date repository of all contracts where the legal team can generate reports, filter by clauses, and reduce risk by flagging risky terms.
A plan to tackle an economic downturn and high inflation could include implementing cost-cutting measures and pursuing strategic growth opportunities. Insight into the contract portfolio will give the executive team the data they need to navigate a fast-changing environment confidently.
Spot risk contracts and renegotiate them sooner
The in-depth and meaningful contract data that LawVu provides to businesses can be used to renegotiate contracts before inflation deems them unprofitable or unviable. Are price stabilizations available? Are there any key customer renewals or extensions approaching? Can you re-strategize your supplier partnerships? Reengineer products? Pass on costs to end customers?
It’s important to prioritize the re-negotiations of contracts that don’t include pricing indexation clauses or similar. If your suppliers have included price indexation or adjustment clauses in their contracts and you haven’t included these in your customer contracts, your need for and ability to change these terms is greatly increased. Price adjustment clauses provide organizations with much-needed flexibility when circumstances change, while price indexation clauses automatically adjusts charges to take into account conditions such as inflation. Using contract management with AI to import and review contracts directly within LawVu allows your team to instantly see whether or not contracts have these clauses, so businesses can then determine an appropriate course of action.
Use contract insights to add ongoing value
The benefits of having an up-to-date contract repository will be felt right through the business. Regularly increasing prices to match inflation is crucial to maintaining profit margins, but without a contract lifecycle management system (CLM), these deadlines are easy to miss.
Safeguarding entire organizations and corporations against the effects of inflation begin with fast and accurate contract analysis. LawVu arms organizations with powerful contractual data and clause searchability, providing them with the knowledge needed to re-negotiate contracts, determine those at-risk and effectively prioritize workloads for expensive legal staff.
To protect your business against inflation, implement contract management software to establish a process early and efficiently. Learn more about LawVu’s contract lifecycle management and automation software for in-house legal counsel