The use of contracts is common in business. And while many businesses have mastered the art of creating effective contracts, the process could be even more efficient.
Inefficient contracting can cost businesses anywhere from 5% to 40% of a deal’s value, depending on the conditions. But companies are now able to overcome many of the obstacles to contracting thanks to recent technological advancements, such as artificial intelligence (AI).
AI has penetrated all aspects of businesses. It has dramatically decreased the inefficiencies and difficulties encountered in the contracting process. Previously, contract creation and maintenance were problematic and involved time-consuming approaches. Those manual systems lacked uniformity and were difficult to organize, manage, and update. The use of artificial intelligence algorithms in contracting technology have changed the entire game.
So, let’s talk about how AI has transformed contracts and how your business can benefit from this most sought-after technology.
The Use of AI in Contract Management
The transformative capacity of AI to decipher and retrieve contract data makes it a unique addition to CLM (Contract Lifecycle Management) software. The technology makes it possible to create, arrange, and evaluate contracts quicker. Such advanced features of AI contract management reduce the risk of disagreements and increase the number of contracts a business can handle efficiently.
In AI contract management, the capabilities can be facilitated by OCR (optical character recognition) technology and a GPT (generative pre-trained transformer)-3 deep learning system. OCR allows converting physical documents into digital format, and with the recent AI enhancements, it’s a highly accurate tech when it comes to transforming text.
By leveraging OCR technology, companies like ContractWorks can easily digitize your contracts and pull up their structure into a streamlined outline. More so, this type of AI recognizes key contract terms like dates, costs, and counterparty information and marks them as metadata that you can use in search, reporting, and drafting of related documents.
GPT is the third generation of the program. It’s a language model that uses a deep learning approach to produce text similar to a human-written one and helps with
- Analyzing big data sets: It identifies patterns in contract data and informs if there are any anomalies.
- Classifying contracts: It organizes contracts by clause, contractor agreement, and metadata, such as creation date, governing law, type, and much more.
- Classifying clauses: It searches documents for meaning by going through them paragraph by paragraph and then categorizing clauses according to their content.
- Locating new clauses: It secures new clauses in a repository.
- Supervising processes: It reorganizes any misclassified clauses that can be used for later identification.
- Classifying associated documents: It acknowledges any associated document categories.
- Simplifying contract language: It translates the contract language into more “human-readable” content.
You must be wondering if any of these features can be incorporated into a program. The answer is yes, you can find tools that use GPT-3 for certain processes. For example, AXDRAFT incorporates the technology’s deep learning approaches in its Simplify feature to aid in contract management. Thus, it helps nonlegal units understand the formal and technical language used so they can fully comprehend what’s inside their contracts.
How Is AI Changing the Contract Creation Process?
Using AI algorithms in contract lifecycle management software helps enhance and optimize different aspects of the contract-creation process. The following are the most valuable contributions you can expect:
The power of AI contract creation goes beyond the use of simple templates. Now, you can create entire contracts in no time by using AI technology. These contracts incorporate all the essential clauses drawn from the agreement details provided in the suppliers’ RFPs and profiles
For example, if you’re using AXDRAFT’s document drafting automation, you can process a 100-page document in seconds because it automates all thee contract creation and management using the power of AI.
Reduces Potential Risk
There is always a balance between risk and opportunities for any business. An AI system can analyze all potential areas left behind by using manual processes, such as misprints and other inaccuracies.
You can minimize potential risk by using Artificial Intelligence in contract creation without sacrificing opportunities. For example, you can add a fallback language to your contracts by using the smart features of AI automation. This is a guide that offers replacement rates when a benchmark is not available (e.g., SOFR, SONIA, ESTR) or discontinued (e.g., LIBOR).
Incorporates Smart Approval Routing
All contract creation and management processes require input from different employees and team members. With the help of AI automation, contextual clues are identified that require approval from different team members.
With AI, all these approval steps can be automatically incorporated into the workflow resulting in a seamless process.
Provides Smart Contracts Authoring
It is a well-known fact that computers can read faster than humans. This is especially advantageous when dealing with complex contracts and larger documents. Computers can quickly sift through thousands of documents in mere seconds. The added advantage of AI is that it recognizes patterns in these documents and assigns a context to them.
Thus, AI automation streamlines the whole contract lifecycle, from creation to tracking. In doing so, it reduces a significant amount of time and effort required from the team members and stakeholders.
Incorporates Machine Learning
The latest AI and Machine learning (ML) technology facilitates data extraction from Legacy Contracts. At the same time, AI contract management standardizes document language. This process minimizes the negotiation time frame and thus boosts overall productivity.
How Is AI Improving Contract Management and Renewals?
AI algorithms can similarly provide specific features that enhance contract creation, management, and renewal. Here are a couple of such improvements:
The integration of contract management with supplier management offers up a world of AI possibilities due to data availability. The system can assess a particular supplier’s performance versus contract throughout the lifespan, but notably during renewal.
It can then provide suggestions on whether or not to renew the contract and alternative options of more dependable suppliers for the business. At the renewal stage, the system may then suggest several scenarios for the team to consider.
Overall, this automated analysis will save your team 30% to 50% of contract time. This saving allows them to focus on more strategic tasks like discovering new essential suppliers and further opportunities.
The procurement teams often face a continuing challenge in ensuring that all members of the organization are purchasing items on contract. They also ensure that the pricing on these contracts is exactly the same as negotiated by the contract teams after a lot of hard work.
There are several eProcurement solutions that track spending against contracts. Some software can even identify products by SKU (stock-keeping unit) and promote them to customers through relevant catalogs, thus saving money.
A step beyond this is possible with AI automation:
- The advanced system can recognize various similar items and propose on-contract substitutes.
- It then automatically verifies if framework contracts are available for the ordered products and discovers purchasing patterns.
- This enables recognition of similar but not identical items when processing a purchase requisition from a catalog.
Using this strategy, the bottom-line savings increase with more bargaining power when negotiating contracts.
Other Applications of AI-Based Contract Management Software
Incorporating AI into your contract management processes modernizes, streamlines, and enhances your present systems:
- AI improves the uniformity of your contract database’s terminology and contract language.
- Third-party contracts are efficiently managed and organized with AI-based contract management software.
- AI can save your company money by automating the contract management process if you have a large volume of contracts.
- Finally, AI has the ability to automate processes and reduce labor costs.
CLM software that doesn’t offer AI and ML features is out of date. The contract creation process has been revamped using AI technology. In today’s competitive world, you should not be left behind when it comes to reaping the benefits of AI for your business.
AI contract management software, such as AXDRAFT, increases efficiency and productivity simultaneously by facilitating contract creation. All of these benefits are achieved by minimizing the time required to draft and review contracts. If you’re interested in transforming the legal processes in your company, schedule a quick demo of the software to try it out now!