Technology permits us to transform tedious, work-intensive tasks into automated, smoothly running tasks. In recent years we have seen an application of this function of technology in the world of contracts: contract automation.
From a legal perspective, contracts are the core of any company. The stability, growth, and daily functioning of a company all depend on the quality of the contracts on which it functions.
People in the field know that drafting a contract can be a very tedious task. Finalizing a complex contract between companies can often take a long time. Sometimes, this leads to a loss of momentum in the deal-making process.
Not only is the process of contracting often long and tedious, the sheer number of contracts within companies lead to difficulties in the organization. They become impossible to keep track of and often lack uniformity.
These issues lead to lots of unnecessary frustration and difficulties.
Luckily, recent technological advancements seek to facilitate the usage of contracts. Enter the world of so called contract automation.
What is contract automation?
Contract automation is a general term used for any type of managing, developing and storing of legal agreements through the use of technology, mostly online.
It can be seen as a subset of the greater business process automation movement, also known as BPM. The goal is: greater efficiency and effectiveness for your business through automation software.
Contract automation software aids you in every step of the contracting process. From the initial contact between potential contracting parties all the way to the final signature. It permits the whole contract cycle to be on autopilot, automating most tasks along the way.
Why should I consider contract automation?
Whilst contracting is a fundamental activity within business, it is often done inefficiently or ineffectively. It has been estimated by researchers at Harvard and KPMG that ineffective contracting can cause a loss of 5% to 40% of value on a specific deal.
The International Association for Contract and Commercial Management found that inefficient and ineffective contract management costs businesses an average of 9% of revenue each year!
According to Aberdeen Research, administrative costs associated with contracts can be reduced by 25%-30% with the implementation of automation
These numbers don’t lie: contract automation software can be a great investment!
Not only can contract automation save you from potential losses of value, it has a wide range of other benefits.
The way we see it, contract automation has three great benefits besides saving you money:
- You gain time;
- You improve your relationships;
- you increase transparency and visibility.
Contract automation saves a precious resource: time
Anyone with experience in business or corporate law will tell you time is a huge factor in the making of any contract.
The way contract automation leads to less time loss is easy: the software takes care of the tedious tasks for you. This permits you to use this gained time in other aspects of your business.
If you delegate most of the work surrounding your contracts to a lawyer or law firm, the usage of contract automation software might not save you time, but it will save up on lawyer fees.
It improves your relationships
Contract automation software will also improve your relationships. A time consuming and inefficient process of making a contract can really test the patience of your client or business partner.
Both your clients and business partners will enjoy the smooth business experience. Your contract automation software might even save them time, effectively making you an attractive business partner.
Next to the contracting parties, contract automation will also make the life of your employees much easier. Their usage of contracts can also be streamlined with contract automation software.
Increased transparency and visibility
Using physical paper or consecutive pdf’s or word documents can often lead to reduced transparency and visibility.
When you use contract automation software, all details concerning the contracts are visible to everyone involved. For example: with end-to-end visibility your stakeholders will always be up to date on the process, seeing the most recent version and adjustments.
Also, your team will always have the most recent version of the contract under negotiation. This reduces the risk of using or sending an old draft.
Not only will the most recent version of the contract always be readily accessible, but the software also allows reviewing every step taken so far. This permits the people involved to follow the process from the initial draft to the current state of the contract.
Many other benefits
Next to these main benefits there are smaller benefits that can help you get ahead. For example:
- reduction of stress;
- ease of storage;
- decreased chance of error and loss;
How does contract automation work?
Which leads us to the question: how does it all work?
Well, there are many different packages of contract automation software available on the market. Each software provider offers a slightly different product, often tailored to a specific sector or type of business.
It’s important to do your research before investing in contract automation software. Keep an eye on our blog for future reviews, comparisons and suggestions.
All things considered, most contract automation software offer the same fundamental functions; discussed in the next paragraphs.
Automated contract drafting, negotiation and signing
In practice, a lot of the contract automation software allows you to work like this:
The parties involved, your company, and other contract parties, can work on a potential new deal together. A draft is saved online and every party can add comments and suggestions.
The initial draft can based on a template which is stored within the software. Often, just a few adjustments are necessary to reach an agreement.
A lot of physical meetings can be skipped this way. It also reduces the number of e-mails that are usually needed to get to the final agreement.
The comments and suggestions of each party can be tracked, worked on and accepted/rejected online, within the contract automation software. This replaces the usual negotiations.
The final step, the signatures, can even be swapped with legally binding e-signatures. Making a physical meeting obsolete, if that suits the situation.
This whole process can be fulfilled online, in one platform.
If physical meetings and e-mails are necessary or recommended in a specific case, these can obviously supplement the usage of contract automation software.
Next to the communal online drafting, negotiation, and signing of a contract, contract automation software also permits you to sore and search for contracts more effectively.
The way you organise your contracts within your company is a much overlooked issue in the day to day functioning of a company. the way your contracts are organized can effect productivity, stress-levels and even lead to errors with serious implications.
Your team must be able to locate and consult contracts in an efficient way. They might need a specific contract quickly to respond to a customer inquiry or to process any kind of change or renewal.
Most contract automation software allows you to create a central repository, wherein all digital contracts (or digital versions of physical contracts) are stored. This way, your database of contracts can easily be searched.
This is another way contract automation software can lead to an increased productivity an efficiency.
A smooth workflow within your company
By now, it is evident that contract automation saves time and facilitates the process of reaching an agreement.
An often overlooked aspect that follows from this, is a smoother workflow within your business. In many companies there are multiple actors and departments involved in the drafting of a contract.
Contract automation software allows for a more streamlined contract process. the draft reaches the next step in the procedure faster and with less, often useless, formalities.
For example the time needed for the draft to reach the review board is decreased. The final draft can be sent to all stakeholders for approval with just one click.
The internal process of drafting, reviewing and approving a certain contract is much more efficient.
Automatic reminders for deadlines and renewals
Most contract automation software also allows you to set up a system of automatic reminders of deadlines and renewals.
This aspect of your software can often be integrated with your e-mail software.
This way you can integrate your contract-specific deadlines within your digital agenda, which is often connected.
AI contract automation?
The term “artificial intelligence” has become a buzzword, used by many new companies trying to gain a tech savvy reputation. In the sphere of contract automation, “artificial intelligence” is also thrown around often. Disclaimer: lawyers are not going to be replaced by robots anytime soon.
But how is artificial intelligence implemented in contract automation software?
There is AI software on the market which offers so-called “contract generation” applications. This type of legal technology provides a framework for lawyers which helps in creating a questionnaire or a pre-defined template, which can then later be used to fill in the blanks or adjust where necessary. On the basis of certain key words the “AI” creates a rough draft of the contract which is to be made.
More advanced software even enables machine learning algorithms to automatically learn from records of past contracts. The algorithm identifies patterns in old, successful contracts to suggest clauses and contract structure for the contract under construction.
AI, though the magic of machine learning and algorithms, can also be used to classify sections, clauses and terms. This leads to automated standardized document language.
Other applications for AI within the sphere of contract automation include:
- Advanced analytics (examples: risk assessment, mitigation, …)
- Smart contract authoring
- Using machine learning for predictive purposes
- Consistency of terms and usage within different contracts
A detailed review of every application of AI within this field would lead to a massive review, not suited for this introductory blog post. Keep an eye on our blog for future detailed analysis of AI applications within contract automation and other legal tech fields.
As with other sectors within the vast field of technology, the potential applications for AI within contract automation seem only bounded by human imagination.
Is AI software beneficial for all?
This advanced artificial intelligence software decreases time spent on drafting contracts even further, effectively boosting productivity to a whole new level.
Some people claim the usage of AI is making “traditional” contract automation software outdated.
We at bestoflegaltech.com only partially agree with this statement. Many companies are not up to speed on this “traditional” automation software and can thus still hugely benefit from contract automation software without AI. On top of that, AI software isn’t cheap and might not be cost effective for every company.
Final words on contract automation
Medium to large sized companies and (corporate) legal professionals who don’t adapt to new technological advancements often lose ground quickly.
Contracts are the spine of a company. Technological advancements such as contract automation software and AI can hugely improve your contracting process, contract storage and general workflow. Mainly by saving you time and improving your business relationships.
On top of that, they can save you a lot of money by reducing costs and minimizing loss of value.
Every company experiencing difficulties with contracts should consider investing in this software. Even companies who claim to have a decent contracting process set up could possibly benefit from the increase in efficiency and effectiveness.