Contracts are a fundamental aspect of modern business operations. Almost every company relies on contracts for both inbound and outbound operations, from obtaining goods or services from vendors to establishing agreements with customers. These documents help facilitate and formalise business relationships, responsibilities, and obligations.
However, developing and maintaining contracts can be complex, confusing, and time-consuming, a luxury that has no place in today's fast-paced business environment. This is where AI-powered contract management comes in. In this blog post, we explore the importance of AI contract management in business operations and how it can help companies mitigate risks and gain a competitive advantage.
The Challenges of Traditional Contract Management
First, let’s examine some of the biggest challenges faced by organisations that rely on traditional contract management systems.
Lack of Visibility
One of the biggest challenges of traditional contract management is the lack of visibility. Contracts are often stored in physical or digital files that only a few people have access to. This means that the people who need to know the information contained in the contract are often unaware of its existence. This can lead to mistakes and misunderstandings, which can be costly for the organisation.
Difficulty in Tracking Changes
Another challenge of traditional contract management is the difficulty in tracking changes. When contracts are edited, it can be challenging to keep track of what changes were made, who made them, and when they were made. This can lead to confusion and potential legal issues if changes are not properly documented.
Slow Processes
Traditional contract management can also be slow and time-consuming. Contracts are often managed manually, and it can take a lot of time to review and approve them. This can delay business processes and sometimes even lead to missed opportunities.
Limited Accessibility
Traditional contract management systems can be limited in terms of accessibility. If contracts are stored in physical files, they can only be accessed from a particular location. Digital files may be stored on a restricted server that only specific employees can access. This limited accessibility can slow down the contract management process and inhibit collaboration.
Difficulty in Analysis
Finally, traditional contract management can be challenging when it comes to analysis. It can be difficult to get an overview of all your contracts, analyse contract data, and identify trends. This can make it hard to make informed decisions based on contract information.
As you can see, traditional contract management has its challenges, and organisations must be aware of these challenges to effectively manage their contracts. Lack of visibility, difficulty in tracking changes, slow processes, limited accessibility, and difficulty in analysis are all potential areas of concern when it comes to traditional contract management.
Luckily, AI technology is constantly evolving, and many organisations are turning to AI contract management software to overcome these challenges and streamline their processes. By adopting modern contract management systems such as ThoughtRiver organisations can ensure they are making the most of their contracts and reducing the potential for costly mistakes.
What is AI Contract Management
In today's fast-paced business environment, every minute counts. Companies need to automate their internal processes to stay competitive and relevant. Managing contracts is no exception. AI contract management is a modern solution aimed at streamlining legal processes, ensuring data accuracy, and increasing efficiency.
By integrating AI-powered contract management tools into their workflows, businesses can reduce manual labour and contract processing costs while keeping track of contracts' life-cycle management.
AI Contract Management Definition
AI contract management (ACM) is the application of AI technology to manage the contract's life-cycle management process. ACM software can accurately analyse the text of a contract, extract relevant data points, and present it in an easy-to-read format.
AI contract review and management software can also automate contract creation, approvals, and renewals, minimising human error. The system ensures immediate access to all data and documentation related to contracts, ensuring that businesses don't miss important milestones and deadlines.
This level of automation can save a lot of time and, more importantly, reduce the risk of costly and reputation-damaging legal disputes. But wait, there are more advantages to using AI in contract management!
Advantages of AI Contract Management
One of the main advantages of ACM is its ability to extract critical data from various sources, such as emails and documents, making it easy to consolidate essential information into a centralised system. This allows firms to monitor the status of contracts, including what has been signed, when the action was taken, and the responsible parties. Let’s look at some other benefits of ACM in more detail.
Accurate Contract Analysis
Most importantly, an effective ACM system is also beneficial for contract analysis, such as identifying areas of risk or making decisions based on financial factors. It can also help in the detection of contract breaches and potential compliance issues, enabling the legal team to take immediate action to mitigate risks.
ACM offers additional benefits like contract processes automation that helps increase productivity and reduce manual work. It enables the legal team to collaborate with other departments and stakeholders, and it provides real-time analysis to identify risks proactively. These tools allow the legal team to spend less time on repetitive tasks and focus on more strategic initiatives. Companies that use ACM software ultimately see improved customer satisfaction, strengthened partnerships, and financial improvements.
Ensures Compliance
Compliance is vital in any industry, and companies that fail to meet regulatory requirements or adhere to legal standards may face hefty fines, lawsuits or damage to their reputation. AI contract management enables companies to stay compliant with industry and government regulations by ensuring all contracts align with standard terms, conditions, and requirements.
In addition, AI-powered contract management software helps in ensuring that contracts are managed per the policy regulations, laws, and service-level agreements, ensuring compliance and adherence to regulations.
Enhances Cost Control and Profitability
Contracts dictate pricing, payment terms, and manage risk within the supply chain, affecting the bottom line of any company. With proper contract management, businesses establish realistic deadlines and control budgets, reducing expenses while managing the revenue streams appropriately. This way, they can maximize profitability and generate more value from vendor agreements or customer contracts.
Improves Risk Mitigation
Contracts identify risks and determine appropriate measures to mitigate them, providing a foundation for businesses to operate without fear of uncertainties. With proper contract management, companies can identify risks, develop mitigation plans and monitor compliance.
With AI on their side, businesses can gain insights into the vital factors that threaten their success, protect against fraud, and issues that could impact revenue, reputation or operations.
Ensures Contract Visibility
AI contract management enables businesses to analyse and track the details of every contract executed across the company. This analysis provides insights into the financial performance of individual contracts and helps businesses make informed decisions about future contracts or amendments.
Streamlines Communication and Collaboration
Effective contract management provides clarity to the parties involved in agreements arranging invoice reconciliation, payments, and other billing issues. It establishes a reliable and robust communication channel, ensuring that everyone has access to the latest information.
Collaboration among internal departments is critical towards delivering quality service and products. AI technology fosters better collaboration among teams by providing timely and accurate information.
When properly implemented, AI contract-management workflow tools improve transparency and accessibility, eliminating potential errors, and reducing redundancy. This ensures that your team always has easy access to the latest contract data, which saves valuable time and resources.
Improves Analytics and Insights
AI technology can provide more comprehensive data insights into your business operations. AI contract management systems provide vital metrics on contract performance, highlighting contract problems and trends, and analyse data for opportunities for improvement.
The data collected enables businesses to make better decisions on managing their contractual agreements, leading to better profitability and lasting business relationships.
Keeps Sensitive Information Secure
ACM creates a secure, organised repository to manage contracts, which helps the legal team keep track of contracts' progress, as well as control their status.
To further protect sensitive information, AI contract management platform provides strict access controls to prevent unauthorised alterations to documents and controls access rights, ensuring the right people can take the necessary action.
Introduces Cost Reductions in AI Contract Management
Although AI implementation might initially seem expensive, in the long run, it significantly reduces costs. Implementing AI in your contract management workflow can reduce both internal and external costs. It eliminates the need for hiring additional staff for performing administrative tasks, thus reducing human errors that can be costly and time-consuming.
Another important consideration: Using AI in your workflows reduces the risk of legal problems from errors or omissions that may occur without automation, ultimately saving you more money over time.
How Real-Life Companies Implement AI Contract Management
Here are a few real-life examples of businesses leveraging AI contract management technology:
Legal
AI Contract Management offers significant advantages to legal firms and general counsel, revolutionising how they handle contracts and enhancing their overall efficiency and effectiveness. The most significant benefit is time savings, since AI contract management automates various tasks, such as contract review, analysis, and extraction of key data points. This saves legal professionals considerable time, allowing them to focus on more strategic and complex legal matters.
Enhanced accuracy is another benefit. AI-powered contract analysis is highly accurate and reliable, minimising the risk of human errors in contract review. It ensures that crucial clauses, terms, and obligations are not overlooked, reducing potential legal disputes. ThoughtRiver users can quickly review and compare multiple contracts, highlighting inconsistencies and discrepancies. This enables legal firms to identify potential risks and make more informed decisions.
In addition, AI contract management software can generate contracts using predefined templates and clauses, significantly speeding up the drafting process while maintaining compliance with legal standards.
Finally, AI-based contract management streamlines processes, reducing the need for manual intervention and paper-based workflows. This leads to cost savings in terms of time, resources, and paper usage.
In summary, AI contract management empowers legal firms and general counsel to work more efficiently, make better-informed decisions, and deliver higher-quality legal services to their clients. By harnessing the power of AI, small and large legal firms can accommodate the growing volume of contracts as their businesses expand. Check out how a legal firm boosted their efficiency thanks to AI-based contract review.
Construction
AI contract management offers several advantages to construction companies, transforming the way they handle contracts and significantly improving their operations. To begin with, AI contract management automates contract creation, review, and approval workflows. This streamlines the entire contract lifecycle, from bid proposals and subcontractor agreements to project contracts and change orders, reducing delays and administrative burdens.
To make contract reviews faster, AI-powered contract analysis quickly identifies critical clauses, obligations, and risks within contracts. This speeds up the review process, enabling construction companies to respond to contract requests and negotiate terms more efficiently.
Most importantly, AI contract management finds potential risks in contracts, such as ambiguous language or unfavourable terms. By addressing these risks early on, construction companies can mitigate legal disputes and financial liabilities.
In addition, AI contract management ensures that contracts comply with industry regulations, local laws, and company policies. It helps construction companies stay on top of compliance requirements and avoid costly penalties.
For added efficiency, all contracts are stored in a centralised digital repository. This provides construction companies with easy access to contract data, enabling them to monitor contract statuses, deadlines, and milestones effectively.
Cost savings is an important benefit, regardless of a construction company size. AI-powered automation reduces the time and effort required for manual contract tasks. Construction companies can save costs associated with labour, paperwork, and contract management errors.
AI contract management facilitates collaboration among various stakeholders, including project managers, legal teams, and vendors. It ensures smooth communication and alignment on contract terms and deliverables. All changes to contracts are tracked, making it easier to manage amendments, revisions, and variations throughout the project lifecycle.
In summary, AI contract management empowers construction companies to operate more efficiently, reduce risks, and ensure compliance throughout their projects. By embracing AI technology, construction firms can deliver projects on time and build stronger relationships with clients and subcontractors. Read about how AI optimises contract management for construction companies.
Financial Services
A financial services firm utilised AI contract management to handle its intricate financial agreements and loan documents. The AI system's language processing capabilities enabled quick identification of crucial clauses and legal risks, facilitating smoother contract negotiations and faster deal closures.
As a result, the company significantly improved its customer experience and gained a competitive edge in the market.
Technology
A global technology firm implemented AI contract management to handle its extensive network of suppliers and customers. The AI system streamlined the contract review process, identifying critical clauses and potential risks within seconds. This significantly reduced the time needed for negotiations, leading to faster deal closures.
Additionally, the platform's advanced search capabilities helped easy retrieval of past contracts, optimising compliance monitoring and enhancing data security.
Healthcare
A global healthcare organisation adopted AI contract management to handle its complex provider agreements and compliance requirements. The AI system efficiently analysed the contracts, ensuring compliance with healthcare regulations and reducing the chances of penalties and legal disputes.
By automating the contract review process, the healthcare company achieved higher accuracy and improved resource allocation, resulting in considerable cost savings.
Retail
A multinational retail corporation integrated AI contract management to manage its extensive franchise agreements and leases. The AI system automatically extracted relevant data from contracts, generating actionable insights and reports for decision-makers.
AI contract management empowered the company to make informed strategic choices and efficiently negotiate better terms with franchisees, boosting profitability and reducing administrative overhead.
Manufacturing
A manufacturing company implemented AI contract management to streamline its supplier contracts and reduce procurement cycle times. The AI system automated contract generation, approval workflows, and reminders, resulting in improved contract tracking and compliance management. This led to stronger supplier relationships, optimised procurement costs, and increased operational efficiency.
These real-world case studies illustrate how AI contract management has become a game-changer for companies across various industries. By using AI's capabilities, these companies experienced enhanced efficiency, reduced risks, cost savings, and improved business outcomes, making AI contract management a critical tool for modern businesses looking to excel in their contract handling practices.
Final Thoughts: Unlock the Power of AI Contract Management
Contract management is critical for a smooth and successful business operation. Compared to traditional, paper-based contract management, AI contract management saves time, streamlines operations, and maximises revenue. In essence, AI-powered contract management sets up a solid foundation on which businesses can build and grow.
Creating an AI contract management workflow is a layered process that requires expertise, attention to detail, and proper infrastructure, but it brings invaluable benefits to the table. Improved compliance, cost control, risk mitigation, and visibility are just some of the key areas under contract management that need attention.
FAQ
What is contract management software?
Contract management software is a digital tool designed to streamline and automate the entire contract lifecycle, from creation and negotiation to execution and renewal. It supplies a centralised platform for businesses to manage their contracts efficiently, ensuring compliance, reducing risk, and improving collaboration.
How does contract management software work?
Contract management software typically works by offering features such as contract reviews, drafting, tracking, and reporting. It allows users to create contracts using predefined templates, collaborate with stakeholders, set up approval workflows, track contract status, and receive automated alerts for important milestones, such as renewals or terminations.
Is contract management software suitable for small businesses?
Yes, contract management software can be highly beneficial for small businesses as well. It helps them manage contracts effectively, minimise legal risks, and save time and resources in handling contracts manually.
Can contract management software integrate with other business systems?
Yes, many contract management software solutions offer integrations with other business systems such as CRM, ERP, and document management platforms. This allows for seamless data transfer and ensures that contract-related information is readily available to other departments.
Is contract management software secure?
Yes, reputable contract management software providers prioritise data security. They use encryption protocols and adhere to industry-standard security measures to protect sensitive contract information from unauthorised access.
How user-friendly is contract management software?
Contract management software is designed to be user-friendly, with intuitive interfaces and easy-to-use features. Many solutions offer customizable dashboards and automated workflows to cater to users' specific needs and preferences.
Can contract management software help with compliance management?
Absolutely! Contract management software can help with compliance management by providing a centralised access to contract terms and conditions, ensuring that contracts adhere to legal and regulatory requirements. It helps organisations maintain consistent compliance practices and avoid potential penalties.
