The Reality of Contract Analysis: 3 Big Mistakes That Banks Make
Financial services, and the banking industry itself, couldn’t function—perhaps even exist—without contracts. They govern every interaction and the movement of every dollar, defining who’s doing what, with whom, and under what conditions. That makes contract analysis vital to a bank’s ability to manage its processes, find efficiencies, mitigate risk, and gain contract intelligence.
Done well, contract analysis enables banks to:
- Deal with ongoing regulatory and market changes including LIBOR/IBOR phaseout, Brexit, and pandemic-related force majeure exposure.
- Gain insight into contractual obligations to optimize performance, improve profitability, and manage risk.
- Protect sensitive client data (including PII) and comply with regulations like GDPR, CCPA, and others.
To realize these benefits, banks must take a strategic approach to contract analytics. Read how to avoid making three common mistakes in this regard.
Mistake #1: Not Leveraging Contracts as Strategic Assets
Forward-thinking financial service firms treat contracts as a strategic asset and mine the data within their agreements to extract business value.
Conducting contract analysis can reduce exposure to risk and improve profitability through effective obligation management. This is done by extracting key details like SLA conditions, variable pricing, and expiration dates and terms. Contract analysis can also identify which language, terms, and clauses are most effective, and which impede the closing of deals.
When treated as a strategic asset, your bank’s contracts can alert your organization to better pricing opportunities, renewal windows, and potential discounts. What was previously seen as an administrative chore is now a means to curbing costs and accelerating processes.
Mistake #2: Lack of Accessibility & Visibility Across all Contracts
Digitizing and automating manual, paper-based workflows remains an ongoing effort. Even contracts that have been digitized may have only been scanned into image files and still aren’t machine searchable. To gain complete contract intelligence, all unstructured agreements must be located and converted to searchable formats, so that important values can be extracted.
Without access to all of your contracts, and a solid understanding of the data hidden within, your organization can’t protect itself against data privacy or regulatory compliance risks they may contain. From a regulatory change management perspective, this lack of insight puts your organization at risk of non-compliance.
Mistake #3: Lack of a Consistent, Unified Approach to Contract Analysis
Too often companies make the mistake of improperly analyzing and managing the key obligations contained within contracts, particularly enterprises with multiple regions and business lines.
Contract analysis can provide greater visibility into the obligations within your enterprise’s agreements, flagging areas for process, policy, and safety improvements. Quicker approvals and procurement cycles can be achieved once best practices are identified and enforced. Only then can contract analysis deliver true strategic value.
Getting Contract Analysis Right
These critical errors can be avoided by adopting a robust Contract Intelligence software that can find, classify, and analyze all your contract documents. This process involves:
- Contract Discovery: Locate contracts of all file types across repositories and fileshares. Convert contract documents into a standardized, searchable format. Identify and eliminate duplicate data.
- Classification: Define contract types and tag relevant attributes. Organize content by type in a defined location, where it can be accessed for future contract analysis.
- Extraction: Extract terms and clauses so they can be analyzed, even if contracts have evolved from different formats and boilerplates over time.
- Ongoing Analysis: Leverage contract analytics regularly to extract value from new agreements and gain greater contract intelligence.
The Final Verdict
Contract analysis can enhance banks’ ability to protect client data, improve procurement, and mitigate risk, but only if contracts are treated as strategic assets. Best practices around contract management need to be developed and enforced. To capitalize on the value of your contracts, your organization must ensure proper accessibility, classification, and analysis of the data within. That’s where the right Contract Intelligence technology shines.
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