How Can Artificial Intelligence Bring Value to Contract Analytics?
Why should you use AI-powered Contract Analytics?
Digital Transformation has changed how businesses operate with most activities being either automated or digitized. Contract management is a good example. Using a Contract Analytics, you can now author, review, negotiate, approve and execute contracts online. Nonetheless, if you use a very basic contract management software to manage your contracts, you’ll not realize efficiency, productivity or cost savings.
According to Deloitte, companies achieve a 60% reduction in contract management costs using intelligent contract analytics. Meanwhile, Gartner has predicted that by 2024, manual reviewing of contracts will be reduced by 50%. Artificial intelligence gives you access to capabilities that traditional models cannot achieve. Enhanced visibility, automatic compliance notifications and streamlined workflow are just a few of the many benefits of AI contract analytics.
Let’s discuss 5 ways in which AI will make your contract lifecycle management infinitely more effective.
1. Automating Contract Creation
Drafting contracts is a technical skill requiring trained and experienced litigators to ensure your company is following stipulated rules and regulations. That is why most businesses would hire a myriad of contract attorneys to perform these tasks on a continuous basis. But there is only so much that a human can read and write in a given session. Our physical limitations put a boundary against which we can not produce more. Understandably, most contract creation begins with a draft. Yet these drafts might not be the best foundation for every case.
Therefore, by depending on humans alone to create contracts, you limit contract quality while incurring a significant cost for the hours they spend working for you. The advantage of AI contract analytics is that it enables creation of contracts from templates and clauses. You can parse through thousands of contracts and identify patterns which can be used in authoring new contracts depending on the relevant contract types.
Contract content can be automatically assembled based on any criteria and using rule-based authoring, you can improve the swiftness and scalability of contract operations.
2. Streamlining WorkflowsOne of the most daunting tasks for a business is managing contractual obligations well. Often, you’ll find it challenging to determine whether your business is functioning as per the terms and conditions set or whether there is a breach of contract. Many enterprises can incur hefty losses due to inaccessible and untransparent contracts. Yet despite all this, you still find that a great number of businesses don’t invest proportionately in contract management.
In fact, a study by McKinsey found that by underinvesting in your contract management workflow, your business can end up with an erosion of value in sourcing of up to 9% of your annual revenue due suboptimal contract terms and conditions. Meanwhile, as the working environment increasingly becomes segregated since more people are working from home, the risks related to business management continue to rise in number and complexity.
A CLM platform improves efficiency in the procurement strategies by providing timely alerts in the event of non-fulfillment, thus reducing operations expenses and administrative disputes. A centralized contract analytics system gives access to information and analytics tools thus empowering your team to work out on a consistent economy of scale, opening up opportunities for better collaboration and business operations. In addition, the AI-powered contract analytics software limit’s your business exposure to risks by improving compliance and reducing occurrences of missed obligations.
3. Mitigating Contract Risks
Businesses are in a constant race of ensuring their policies and business operations comply with set regulations. With the advancement in technology, they have access to timely information and can take actions as soon as possible. However, the rate of change of regulations and the increasing complexity of new regulations has made compliance a daunting task. Compliance officers have to scout for information from a myriad of sources to stay up to date. Clauses that are valid today become redundant tomorrow resulting in the contracts becoming non-compliant and opening up room for a lawsuit.
In an instant the trajectory of a business can change considering it can cost a company $4 million for non-compliance. AI contract analytics software can prevent such issues. Machine Language Processing MLP algorithms go through a large volume of documents, identify and classify clauses, and highlight differences between document versions.
AI empowers the tool to address unexpected risks, identify opportunities that can benefit your business and create duties necessary for compliance. With such capabilities, you can rest assured that new regulations, however complex, will not catch you flat footed. The audit trail will also improve visibility and ensure you can keep all stakeholders updated.
4. Accelerating Negotiations
Before contracts are approved and brought into action, you must discuss with partners and negotiate a deal that favours both parties. Often, businesses will spend a significant amount of time in these negotiations and incur costs in the back and forth discussions and repeated document reviews.
In addition, you need to conduct thorough research of the partner’s business operations, product history and any other information you can get your hands-on to give you substantial information for better negotiations. But in business, time is money and you don’t want to spend days or weeks on a single business opportunity while others go unattended.
Goldman Sachs estimates that automating contract management accelerates negotiation cycles by 50% and while cutting the operating costs by up to 30%.
But how can artificial intelligence bring value to contract analytics?
- First, it gives you access to historical information and contractual insights, empowering you to identify clauses that offer opportunity and thus negotiate better deals.
- Secondly, it defines contract boundaries to ensure that you align with set standards and avoid oversight during contract negotiations.
- Lastly, through intelligent document processing, it captures terms of business such as product prices, incentives and discounts and organizes the data for enterprise integration and enforcement of the terms.
5. Approval and Execution
Every contract needs approval before it can be executed. This involves meeting up with interested parties for signature collection. In a small enterprise with few contracts to execute every month, it doesn’t seem like a challenge. However, when dealing with a large business with thousands of clients, or even more, it becomes a challenge.
Lest you forget the cost of logistics if you’re still pegged in the manual signature system. With an AI contract analytics system, you can significantly enhance contract approval and execution time. An NFL quarterback executed a $10 million contract from his phone while sitting in a fast-food parking lot. Traditionally, he would have had to schedule a meeting and fly miles just to put down a signature. While digitization makes it easy to sign contracts, an AI contract analytics software streamlines approval by taking advantage of contextual clues to know the contracts that need approval from different parties.
You can also add approval steps in the system and automatically update contractual parties on renewals. In case of any regulations changes, the software can update you for compliance.
Digitizing contract management is an absolute necessity in this digital era because it enables easy access and handling of contracts. AI takes contract analytics to a higher level of efficiency. Besides accessing and handling contracts, you can streamline all other processes involved in contract management. You can achieve productivity levels at a fraction of the cost, time and effort.
I hope this article has opened your eyes into the most valuable functionalities you can accrue from an AI contract analytics software.
Our Adlib software is a great place to start if you want to kick the automation wheels into your contract management. Schedule a Free Demo to learn more about how we can work together to make your contract lifecycle management system more effective.