This article is featured in the Association of Corporate Counsel (ACC) Tampa Bay chapter’s newsletter series.
Running a data-driven business is essential to remaining competitive today. Organizations must cultivate and analyze data across functional departments to produce strategic and operational insights. But there’s one data source that some organizations completely overlook on their quest for data-backed insights: their contracts.
A typical Fortune 1000 company has 20,000-40,000 active contracts, according to the International Association of Contract and Commercial Management (IACCM). Those contracts are often stored in filing cabinets or shared drives, and in some cases, are completely misplaced. By aggregating contracts into a central repository, you can tap into contract analytics to glean insights about your company’s contract operations, obligations, liabilities, and opportunities.
AI and Machine Learning are Fueling Contract Analytics
Artificial intelligence and machine learning technologies underpin the foundation for contract analytics. Technologies like optical character recognition (OCR) and natural language processing (NLP) can transform PDF Microsoft Word and Google documents into searchable text data. From there, machine learning algorithms can identify, extract, and analyze contract metadata (i.e. terms, dates, clauses)—turning your 100-page PDF into 100 pages of searchable information. Multiply this scenario across thousands of contracts, and you’ll have of mountains of data to work with. What once was a pile of transactional legal documents becomes a wellspring of insights that will help you strengthen future contractual relationships, reduce risk, and identify cost savings.
Turn Static Documents into Contract Intelligence
Visualize your workflow in a contract management dashboard
Tired of digging through emails or conference calls to find the status of a contract? Use a contract management dashboard to visualize your firm’s workflow. See which contracts are getting drafted, in negotiation, awaiting approval, or awaiting signatures. This holistic lens allows you to spot trends and answer questions like where are there inefficiencies in our process? Or where are contracts getting stalled?
Just like sales teams examine the sales funnel to see where prospects or clients are getting stuck, you too should look at your contract management process to identify bottlenecks. For example: If you see a growing number of contracts stalled in the ‘awaiting approval’ stage, then you can investigate and determine why. Perhaps one person in your organization is getting bogged down by approvals and maybe you can spread out the approval process among multiple people or assign approvers based on specific terms. This is just one of many scenarios where a contract management dashboard helps identify opportunities for improvement.
Produce actionable information to optimize contractual relationships
Rather than letting your contracts gather dust, use a searchable contract repository to produce actionable information for operations, procurement, finance, and sales to optimize vendor and client relationships. Think of a contract repository as a massive database for your contracts. You can run Google-like searches or generate custom reports about your contracts to answer questions like:
• How many active contracts do we have with a specific company?
• How many contracts do we have with a specific company with payment terms greater than 45?
• Which contracts are expiring within the next 30-60 days?
• Which vendor agreements have a Termination for Convenience clause? And for those agreements, what’s the Notice Period?
• How many contracts have we executed in the last week, month, quarter, or year?
• Which contracts are currently in negotiation and have a creation date greater than one month?
Protect yourself from revenue leakage and risk
For some industries, vendor and supplier contracts compose 90% or more of annual revenues, according to a McKinsey study. And inefficient contract management and the inclusion of suboptimal terms can cost up to 9% of annual revenues. For a $10 billion firm, that’s close to nearly $1 billion in revenue leakage. To protect yourself from revenue leakage and reduce risk exposure, use AI-based contract analysis tools to find areas of risk in your contract portfolio.
What are the terms and clauses in your agreements that are exposing you to risk? How many agreements do you have with the words unlimited, autorenewal, and fee increase in them? With AI-based contract analytics, you can summarize the contracts containing those words to determine if you should renegotiate more favorable terms for future renewals or perhaps negotiate amendments.
Additionally, you can search clauses across your contracts to understand your obligations as well as the counter-party’s obligations. Search Indemnification, Limitation of Liability, Insurance, Force Majeure clauses, and more to understand what you’ve committed to, and the potential impact it may have if challenges or issues arise.
Get Started with Contract Analytics
Contract analytics provide a window into your organization’s risks, opportunities, and obligations. But to build a contract analytics capability, you need the right platform, people, and processes in place. That’s where we can help. See how leading organizations in professional sports, staffing, logistics, professional services, and more are optimizing their contract lifecycle management with our AI-powered platform—and how you can, too. Schedule a demo today.