Artificial intelligence is revolutionizing the world of business, including AI contracts. In this blog, we explore how it works and how your company can take advantage of this new technology’s benefits.
A Short History of Computer-Assisted Contract Management
Once upon a time, contracts were a paper-driven endeavor. Humans have had contracts almost as long as they have had business agreements and their major components have not changed in all this time. Contracts have, however, become increasingly complex as legislation and litigation have complicated business law.
When computers entered the office in the 1980s, contracts were one of their first tasks. Imagine being able to type and edit a contract on-screen when there was a revision, instead of having to type out a fresh version each time! It seems archaic to us now but it was a major innovation. Another leap in contract management came with the internet and the ability to share documents between parties, allowing them to edit and send back changes. Collaborative documents and track changes were also big wins.
But it is the contract lifecycle management (CLM) software revolution that has had the biggest impact, especially for small businesses. CLM platforms like Anapact furnish business leaders with a robust set of interlocking tools and capabilities, including:
- A searchable contract repository
- The ability to review and redline contracts in a single place
- A clause library with role-based controls to reduce the risk of breach
- OCR scanning to digitize your paper contracts
- Automatic tagging of important details, and
- Integration with ERP and other workflow tools
Technology research giant Forrester found that businesses that used CLM software managed contracts faster and more efficiently than others. They also renewed 56 percent of their contracts annually, compared with 25 percent for companies without a CLM.
The impressive gains that leading businesses have realized through a CLM can be accelerated by adding AI to the mix.
What Artificial Intelligence Can Do for Contracts
AI involves the training of computer algorithms to analyze data and use it to make predictions. In a contract management context, an AI can be trained to recognize patterns using any data available. That means what an AI can discover is limited only by the available data and the imagination of the person posing the question. Three main benefits have emerged from the first few years of AI contracts.
1. Automatically Identify and Flag Contract Issues
An AI can be trained to look for the things that are important to your company, including potential compliance risks or unclear or inconsistent clauses. For example, you might have it scan for force majeure clauses and make sure they are consistent with what you have learned from the COVID-19 pandemic.
It can automatically tag these problems with highlights and explanatory text so your team can see what’s wrong. You may also want to train it to automatically update variables. For example, it can find old language in a contract that’s up for renewal and automatically update it for the new version.
Set it up once and it will remain forever vigilant, saving your review team time.
2. Identify Key Management Data
The AI can surface important information like renewal and delivery dates, which will help keep your business on track. Connect the data to automation tools and you can save hundreds of hours in contract management time. That’s more time you can use to write more contracts for more money.
3. Analyze Contracts in Bulk
So far, we’ve covered how an AI can help you do things you need to do anyway. This third benefit is that it can also identify problems and opportunities you didn’t know you had.
Because an AI is a pattern recognition engine, it can focus on any variable or collection of variables. That’s helpful for sorting contracts into types, sure, but it can also show you how your business can run even better.
Let me explain: If your AI has access to data from your contract lifecycle management platform and your fulfilment software, it can calculate your company’s net profit for each contract. Aggregate the most lucrative contracts and the AI can identify what they have in common.
Perhaps they are all for a certain type of service, or they involve a process that your competitors aren’t as good at? Perhaps they’re all negotiated by a single salesperson? All of this is vital information you can use to prioritize your work.
Likewise, an AI can be used to identify parts of your pipeline where your business is revenue-neutral or profit is squeezed. Your business is based on contracts! You can use the information in them for more than just negotiating.
What is Next for AI Contracts?
Artificial intelligence capabilities are expanding rapidly in all industries. Contract management is no exception. One of the most exciting evolutions is the ability to use AI to predict legal outcomes. By analyzing legal precedents, the governing contract, and previous outcomes in the same jurisdiction, the AI is able to predict the success of potential legal action before the contract is even signed! Imagine the power of being able to test a new clause during the redlining process and figure out how it’s likely to play in court.
Doctoral candidate in Strategy Beverly Rich explored the future of AI for contracts in the Harvard Business Review. She said that right now, AI was most useful to companies with a large volume of similar contracts but eventually, all businesses would employ this technology.
“When companies negotiating a contract can easily access every similar contract from the past twenty years, prioritized by industry, and see what wording is most commonly used, we should see less onerous negotiating over clauses, leading to an easier contracting process,” she wrote.
Your First Step to Unlocking AI for Contracts
The power of AI can be a game-changer for your business. So how do you get started? Your first step is to move your contracts to a contract lifecycle management platform. The CLM will unite and categorize your contracts in the metadata-rich storage that an AI needs to analyze them.Anapact’s ability to store, catalog, and automate rich tagging makes it an ideal choice for small businesses that want to leverage AI contracts. Get a demo today.