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The biggest challenge for companies when managing contracts is the high number of contracts to keep an eye on; these contracts are often inconsistent and difficult to organize, maintain and update.
There is no easy way to review or compare complex outsourcing arrangements, how to express a condition across departments, as most companies don't have a database of all the information in their contracts, let alone an effective way to extract it. Not only does it take a lot of work to create, execute, and improve contracts, but also to write, execute, and improve contract processes and the transactions that govern those contracts.
How does AI impact contract management?
Artificial intelligence is taking contract management to the next level. Manual entries and sorting of long email threads are no longer necessary. CLM technology combined with AI, can improve contract document management in any organization, regardless of how large or complex a contract portfolio is.
5 ways artificial intelligence will improve your contract lifecycle management
1. Contract automation
The drafting of contracts is a technical matter that requires qualified and experienced lawyers to ensure that your company complies with the rules and regulations. That is why most companies hire dozens of new contract lawyers to complete these tasks on an ongoing basis.
However, a person can only read and write a certain amount in a single session. Our physical limitations limit how much we can do. Most contracts understandably start with a draft. However, these drafts are not the appropriate basis for every situation.
Relying exclusively on lawyers to draw up contracts means that the quality of contracts is limited and there is a significant cost for the hours they work for you. The advantage of AI is that it allows contracts to be developed from templates and clauses. Depending on the contract type, you can search thousands of contracts to identify patterns that can be used to create new contracts.
2. Streamlined work processes
One of the most difficult tasks for a company is effectively managing contractual obligations. It can be difficult to assess whether your company is working in accordance with the terms and conditions or whether there is a breach of contract. Many companies suffer significant losses due to unavailable and unclear contracts. Nevertheless, the vast majority of companies do not invest adequately in contract management.
According to a McKinsey study An inadequate investment in your contract management workflow can result in a loss of value when procuring up to 9% of your annual turnover due to inadequate contract terms. With the automated workflows enabled by AI, your CLM system allows you to streamline your compliance functions while reducing the costs of meeting contractual obligations.
3. Mitigated contract risks
Companies are constantly trying to ensure that their policies and business processes comply with applicable regulations.
Thanks to technological advancements, they now have access to timely information and can take action as quickly as possible. However, the speed with which regulations are changing and the increasing complexity of new regulations make compliance a difficult task.
To stay up to date, compliance officers must search the Internet for information from a variety of sources. Clauses that are still valid today may be out of date tomorrow, meaning that the contracts no longer comply with the regulations and the door to a legal dispute is opened.
With AI software for contract management, such problems can be avoided. Machine language processing (MLP) algorithms process a large number of documents, identify and classify clauses, and highlight discrepancies between document versions. Using AI, the tool can manage unforeseen threats, uncover opportunities that can benefit your organization, and set compliance obligations.
With this knowledge, you can be sure that new regulations, however complicated they may be, won't surprise you. The audit trail also increases transparency and ensures that all parties involved are kept up to date.
4. Expedited negotiations
Before contracts are accepted and implemented, you must consult with the parties involved and reach an agreement that is mutually beneficial. Companies often spend a lot of time and money on these conversations and incur costs due to the back-and-forth and repeated review of documents.
AI-powered contract management software can significantly reduce the time and effort required for negotiations.
But how can artificial intelligence with Contract Negotiations offer added value?
- First of all, it gives you access to historical data and contractual insights so that you can find conditions that present opportunities and, as a result, negotiate better contracts.
- Second, it sets contract limits to ensure that you comply with established standards and are not overlooked when negotiating contracts.
- Finally, through intelligent document processing, it records terms and conditions, such as product prices, incentives, and discounts, and organizes the data for business integration and enforcement of conditions.
5. Efficient approval and processing
Before a contract can be implemented, it must first be approved. To do this, you have to meet with interested parties to collect signatures. For a small company with a few contracts that have to be fulfilled every month, that doesn't seem difficult. However, things get more problematic for a large company with hundreds, if not thousands of customers.
Manually managing distribution, legal, and financial contracts, of which there are numerous contract versions that require additional approvals, will be complex and confusing. If you're still working with the manual signature, don't forget about logistics costs. With AI-powered contract management software, you can drastically reduce contract approval and execution time.
While digitization makes it easier to sign contracts, AI contract management software accelerates approval by using contextual clues to identify contracts that need to be approved by multiple parties. You can also add approval levels to the system and automatically update parties when renewals occur. When regulations change, the software can keep you up to date.
