Contract analytics technology is vital to keeping your finger on any legal agreements that your company drafts and enters into. Creating contracts can be a daily task at companies, as even the most simple products and services will carry with them a fresh set of legal agreements and contracts. As such, analytics and artificial intelligence (AI) are drastically changing contract management to streamline the process and reduce risk.
If you don’t design your contracts well, they have a chance to put your company at risk of liability and other problems. Companies that rely on manual contract creation, review and approval put their business in harm’s way. You do not want to overlook commitments, possible discounts, compliance mandates and additional milestones. Implementing contract analytic software gives you the ability to feel secure that you’ve fully reviewed a contract without missing any hidden risks.
What is Contract Analytics Technology?
In short, contract analytics technology is software that uses machine learning to help companies analyze contracts more efficiently and effectively.
As we get more into the details, you should know that the software utilizes machine learning algorithms, which aid the authoring of contracts as well as their outcomes. These algorithms take apart documents, checking each area of the contract against other approved templates for contract language to show the user how terms and conditions differ.
For example, these programs can be used by an organization that has a large collection of purchase agreements, with many of them written in different languages. Let’s say that a company like this needs to know if a clause is present in every contract and also know if the wording is consistent or varied throughout. Contract analytics technology can find this information and extract the information quickly. After doing this, the reviewer can figure out which contracts your company needs to amend or renegotiate based on where the clause is used or not used.
Along with analyzing existing contracts, contract analytic technology helps companies write agreements. For example, with the power of AI, the software will generate a summary of a document after an inquiry is finished and then suggest that the company add or remove clauses based on data from other contracts.
Once contracts have been agreed to and signed by all parties, contract analytics software can monitor the outcomes of the contract — like performance. If terms are not met, the software can send alerts to your company to let them know why. Additionally, the software will alert users when a contract is set to expire.
The software is very useful to those who want to do a deep dive into their company’s many contracts and agreements. Stakeholders can gain access to important information using in-depth search capabilities and exploration portals. A member of the sales team can use the technology to see what sort of options are available for a client based on their contract, while a financial professional could quickly find areas where the company could increase their revenue by meeting bonuses.
The Role of Analytics in Contract Management
Analytics in contract management are becoming mainstream as they benefit companies in all industries tremendously. When you look at the benefits of contract analytics technology and see that rival companies are using it to their advantage, it should become apparent that this tech is vital to the success of your company.
There are many benefits to analytics technology in contract management that make it crucial for companies to utilize it in ever-competitive industries. As a more updated version of the standard Contract Lifecycle Management (CLM) system, contract analytics software adds incredible value to current CLM systems. You can find some of the most critical ways that analytics adds value to contract management below:
- Contract authoring: Contract analytics software is the perfect assistant while a contract is being written and approved, as it can provide advice and qualitative analysis of your content. The software does this by learning from other contract requests to provide the user with more interactive guidance. Not only does it improve the authoring, but it can also improve contracting outcomes.
- Natural language voice commands: Another way analytics software adds value to contract management is through its inclusion of voice commands to interact with the software in a more conversational style. These voice commands allow users to interface with contract management systems in a fast, efficient and straightforward manner.
- Tagging and sorting of contracts: It’s always a challenge for CLM systems to apply metadata tags to relevant clauses from imported contracts, whether from existing contracts or those from a counterparty. AI lets this metadata tagging process become an automated process.
- Better ability to react to new challenges: With standard CLM systems, it can be difficult to anticipate challenges like changes to new regulations or tax law. AI tools can use semantic analysis to do a multivariable search to find contracts affected by new conditions — providing a much more efficient alternative to a more traditional approach.
- Advanced analytics: As around 90% of a typical contract’s language assigns responsibility to those who will be liable if things go wrong — while only 10% describes what happens in the business relationship — knowing the risks associated with a contract is more important than ever. Analytic contract management lets you really explore ways to better contract performance by looking into the opportunities, risks and obligations associated with the contract.
Four Benefits of Contract Analytics Software to Your Business
As analytics add value, they also carry a number of benefits to your business as a whole. The analytics capabilities of the Icertis Contract Management (ICM) platform help companies optimize their existing contracts and the ones they are currently drafting.
Below are four benefits that contract analytics software provides for users and businesses:
1. Improves Risk Management
Managing risk is consistently a top concern for executives. Risk can range from a supplier’s financial instability disrupting the supply chain to being penalized for noncompliance with a government contract. Contract analytics helps procurement professionals identify risks, like deviations from your standard procedures or cost overruns. With the user-configurable reports the software runs using data from multiple departments, your company can help you vet suppliers and analyze your existing contracts.
When you create a contract from scratch, you are introducing a great a deal of risk to your company that does not need to be there. Consistent terminology, phrasing and terms are necessary to avoid inconsistencies that can put your company at risk. To prevent this, you can use a platform ICM as it integrates itself into Microsoft Word to make available a clause library that contains pre-approved language and terms. This ability prevents noncompliance and makes for a much smoother contract creation process.
Another major risk you face is off-contract buying. While standard contract management software will only tell you what should be happening with a contract, an AI system will track if terms are being followed and if off-contract buying is taking place. As off-contract buying generates inconsistencies, violates exclusivity terms and results in forfeited bonuses and rebates, you’ll want to be able to keep track of it to be able to respond quickly if the practice occurs.
2. Tracks Expiration and Renewal Dates
One of the most straightforward elements of contract analytics relates to its ability to keep tabs on contracts’ expiration and renewal dates:
- Expiration dates: Your contract analytics software can be set to send you an alert when one of your existing contracts is nearing its expiration. With these alerts in place, you’ll have time to fully pore through the data to make the best decision. This extra amount of time will help you ensure the compliance of your future contracts and that they are in the best interest of your organization. Additionally, these notices will help you avoid a contract expiring unintentionally.
- Renewal dates: As a contract is set to renew, your contract analytics software will send you an alert just like it would for a contract that’s expiring. The software can then help give you a customized view of the client’s performance and compliance data across all relevant departments. You can then decide if it’s in your best interest to let the contract renew or if you need to renegotiate terms.
3. Reduces Contract Cycle Times
Most companies are under pressure to improve their efficiency, but many aren’t aware of how to do it. They know that they need to reduce their cycle times to remain competitive in the market, but they’re still searching for better processes. Though it might not be obvious, only 5% of a contract cycle time actually relates to the performance of a task, while 95% is spent on non-productive work delays.
Waiting for approvals, unnecessary repetition and duplicating work are staples of many cycle times. Contract analytics provides transparency throughout every part of the contract lifecycle. This transparency allows you to find inefficiencies that are bogging the cycle time down — and identify opportunities you have to improve analysis. Not only does the software reduce the cycle times within your company, but it will also save whoever is doing the analysis a significant amount of time, as they will not have to do it manually.
On the Icertis platform, the software tracks the review chain using timestamps to note rejections, changes and approvals. If you ever have an issue with a contract or have a question, you can quickly log on to the platform to answer your question or determine when and how the issue began.
Additionally, the platform will keep the whole team updated on the contract’s status, from draft to pending approval to approved and, finally, executed. It also helps by ensuring that your entire team is working on the same version of the document instead of accidentally using an unapproved or out-of-date contract. With the contract creation features, you will also save your legal team time spent on sending back contracts for language revisions, as a contract should have pre-approved language and phrases just a click away.
4. Identifies Revenue Opportunities
With contract analytics, you will have many opportunities to optimize your revenue opportunities, including:
- Supply chain tracking: You can easily follow the contract terms and conditions throughout its entire timeline with analytics. If some inefficiencies or areas could be improved, the software will help you see them. Viewing your supply chain on a global view will help you to take your contracts to a more profitable and beneficial level.
- Optimize current contracts: As a contract reaches its expiration or renewal date, you will need to understand how the contract has performed thus far and if it can be adjusted to match your business objectives better. Your contract analytics will make this information readily available, reducing the staff and time you need to gather the data. All the information the software gives will help you make savvy decisions on contracts.
- Standardize contracts: Due to contracts passing through multiple stages of review and then approval, it will often be hard to know where the contract is in the process and whose hands it’s in. You create confusion among your team by not knowing what stage a contract is in or who has the most definitive version of it. With analytics software, you’ll be able to keep your team all on the same page, letting you focus on how you can increase your revenue.
- Track renewal and expiration dates: You can save money and lobby for better contracts if you know when existing ones are set to renew or expire. Automatic renewals or unexpected expiration of contracts will make you lose revenue for no reason other than forgetfulness.
Let Contract Analytics Software Work For You
With all the benefits contract analytics software can provide, you should have it working for you. Analytics in contract management is here to stay and will be utilized by the savviest businesses to ensure their contracts are providing the most value possible.
Learn more about how the Icertis Contract Management (ICM) platform uses contract analytics to surface business insights. If you’d like to discuss our platform with a specialist, reach out to us today.