AI Contracts: A Guide To The Technology Changing CLM
As a key component for creating successful, long-term commercial relationships, contract management is an essential yet oftentimes ill-managed practice. In fact, one study reported that firms may lose anywhere between 5 to 40% of the total contract value due to ineffective contracting.
The root of such inefficiency: conventional manual contract management, of course.
Given that existing contracting processes call for enterprises to author and maintain hundreds, if not thousands of contracts and embedded obligations, mismanagement is inevitable. As a result, no industry is immune to poor contract management or its expensive aftermath.
This is where artificial intelligence (AI) comes into play and has the potential to change the game.
What Are AI Contracts?
AI can be broadly defined as any technology capable of autonomously learning and performing actions. In the case of contract lifecycle management, AI opens up promising application points to enhance companies’ understanding of contract data and analysis, enable risk discovery, and extensively automate drafting procedures.
Whereas first-generation CLM software relies on rules-based automation that still requires heavy manual intervention, AI-powered contract management platforms are designed to harness contract intelligence and enable enterprises to craft stronger contracts, which will subsequently streamline all downstream stages within the contracting lifecycle.
In this article, we’ll take a closer look at the specific ways in which artificial intelligence can make contract management better.
What is the Role of AI in Contract Management?
Artificial Intelligence is taking contract management to the next level. Gone are the days of manual inputs and sifting through lengthy email threads. Through the use of AI, CLM technology has the potential to improve contract document management in any industry, no matter how extensive or complex a contract portfolio may be.
Combining machine learning (ML), natural language processing (NLP), and other AI technologies, AI-powered contracting software such as Sirion utilize a neural network-based system to identify, learn from, and offer prescriptive insights based on retrospective contracting data to help create smarter agreements, faster than ever before.
Below, we’ll discuss the various application points and the benefits AI contracts provide:
Harnessing Contract Intelligence with AI
Legacy contracts are often spread across multiple data silos, limiting visibility and accessibility. As a result, contract managers—and by extension, other key stakeholders—are unable to access contract information on demand due to lack of centralization and data structuring.
This lack of visibility also prevents organizations from effectively enforcing contractual terms, leading to suboptimal business outcomes.
However, through the use of AI-powered auto-extraction and analytics, CLM software drastically reduces the time required for data extraction. Here are some ways in which AI helps you make the most of contractual data:
- Information discovery and visibility: AI-led CLM platforms such as Sirion can connect with industry-standard software such as ERP, P2P, and CRM to pull in and digitize documents, which are then stored in a centralized, cloud-based repository.
Once uploaded, users can utilize the “fuzzy search” or any other advanced search function to quickly and easily locate contracts according to the title, clauses, counterparty name, and so on. In effect, this functions like ‘Google search’ for contracts.
- Data extraction and accessibility: The AI engine also extracts metadata, clauses, obligations, SLAs, rate cards, and other relevant data points from contracts. This makes all granular contractual data immediately accessible.
- Performance management: The extracted data can then be visualized through role-based dashboards to enable supplier performance and obligation fulfillment tracking.
This information can also be used to support re-negotiation strategies, identify cross-sell and upsell opportunities, and facilitate smarter, data-backed decision-making.
AI Contract Authoring & Negotiation
Standardized contract management processes are key to ensuring due diligence during the contract authoring and negotiation phase. However, given the sheer volume of contracts organizations must manage, reliance on traditional, inefficient contracting processes becomes increasingly problematic.
When done manually, the contract drafting and legal review process can be arduous, error-prone, and simply impractical. Miscommunications and unfavorable agreements are more likely to occur. This, in turn, may prolong the contract negotiation phase, adding to the workload of contract professionals.
Fortunately, with one-click drafts enabled by AI-guided contract assembly tools, templates, and automated workflows, companies can streamline the drafting phase and expedite the negotiation cycle by up to 50%.
To ensure compliance with company-preferred positions at every touchpoint, contract management systems provide AI-assisted redlining and clause selection. These tools accelerate the legal review process by automatically scanning drafts and third-party papers to discover risk elements.
Everything from missing clauses, clause deviations, insertions, deletions, and modifications are highlighted by the AI. The AI can then offer prescriptive suggestions for preferred clause language. Not only does this significantly shorten the legal review phase but also enables companies to draft contracts up to 90% faster using standardized contracting language.
When businesses have thousands of procurement contracts, customer contracts, non-disclosure agreements, other contract types, and legal documents to manage, manual risk mitigation is ineffective. Simply put, organizations will continue to unknowingly increase their risk exposure.
Companies that adopt AI contracting software can go on to improve risk discovery in third-party papers and legacy portfolios.
As a self-learning system, a CLM’s AI engine can compute and generate risk scores against contract drafts by comparing its clauses against the enterprise contracting playbook. Contract managers can then course-correct based on the AI-suggested modifications.
With regards to legacy contracts, risk identification is made possible thanks to digitization. Following digitization, information from both printed and handwritten agreements can be extracted and subsequently compared against company standards.
The CLM system alerts all stakeholders of potential issues and areas of risk—leading to fewer compliance issues and better alignment with desired business outcomes.
Unleash the Power of AI Contract Management with Sirion
Artificial intelligence is paving the way for smarter, more cost-effective contract management solutions. As technology continues to radically transform how we conduct business, traditional contracting is not only unnecessary—it’s harmful to professional relationships.
Sirion’s next-gen contract management software sets a new standard for contracting. It offers cutting-edge, industry-acclaimed contracting AI for enterprises. Just as contracts can affect and dictate business practices, Sirion’s AI supports every touchpoint of the contract lifecycle.
With Sirion CLM, business leaders can take advantage of:
- Self-learning AI: Sirion’s AI-powered contract analytics technology is neural-network-based. When compared to traditional rule-based AI that cannot evolve naturally, Sirion stays ahead of the curve by continuously improving accuracy and speed with every contract it analyzes.
- Machine vision: By leveraging Sirion’s natural language processing and machine learning algorithms, its AI can perform multi-format, multi-language, multi-line, multi-column, and multi-table extraction from any document type and format, including handwritten text.
- Unmatched extraction granularity: Sirion’s extraction methodology doesn’t stop at simple metadata. It also extracts highly nuanced but no less critical information concerning clauses, obligations, SLAs, price books, and more.
- Prescriptive insights for contract drafting: Sirion’s AI engine enables rapid first draft contract assembly by offering suggestions on clause language with the goal of aligning every contract to the standardized enterprise playbook.
- Prescriptive insights for contract review: During the negotiation phase, own drafts and third-party papers are scanned by the system’s AI to enable risk discovery (by highlighting missing clauses, clause deviation, insertions, deletions, modifications) and remediation through prescriptive suggestions.
Building stronger commercial relationships starts with next-gen AI-powered contract management solutions.
To learn more, request a demo today with Sirion and start adopting AI strategies for more effective contract management.