Organizations often lose up to 40% of their value due to inefficient contract management, as highlighted by the Harvard Business Review. Traditional contract management systems cause numerous problems like missing deadlines, compliance violations, and forgetting renewal and renegotiation dates. These issues can make it difficult to locate or retrieve contracts. Paper-based processing also leads to errors, such as not understanding previous outsourcing agreements or how specific clauses were developed across different departments, especially in the absence of a centralized contract database. The labor-intensive process of creating, editing, and finalizing contracts demands significant manpower. Managing a large volume of contracts presents considerable organizational challenges, resulting in poor coordination and infrequent updates, making effective oversight difficult.
To tackle these challenges, businesses can leverage advanced contract management technology. Efficient contract management is becoming increasingly crucial for businesses, and according to a Gartner report, AI-based contract analytics could cut down manual contract review efforts by 50% by 2024. By 2023, it’s expected that 90% of large global enterprises will adopt contract lifecycle management solutions.
With digital transformation reshaping contract management, new opportunities are emerging despite the increased complexity as businesses scale. Researchers state that written agreements account for 60-80% of business transactions, with a standard Fortune 1000 company managing between 20,000 to 40,000 active contracts. Poor contract management can cost companies about 9% of their annual revenue, potentially leading to a loss ranging from 5% to 40% of deal value.
The implementation of contract management shouldn’t be considered optional, given its significant impact on business revenue. As digital transformation continues, robust solutions in contract lifecycle management (CLM) will become necessary. By 2024, CLM software will increasingly use AI and machine learning. AI technology will help automate compliance, accelerate the contracting process, and provide total visibility, freeing business teams to focus on strategic decision-making and higher-value tasks.
AI in contract management offers several advantages:
- Contract Drafting: AI will streamline the traditional contract drafting process by using natural language processing (NLP) and machine learning to extract terms from various sources, like third-party documents and standard templates, reducing negotiation time significantly.
- Contract Review: AI will help identify potential risks and deviations in contracts, automatically suggesting alternative wording for more efficient negotiation.
- AI-Enabled Analytics: By 2024, NLP adoption in contract analysis is expected to surge, enhancing predictive analytics to better understand contract performance and risks.
Data Security and Compliance play a crucial role as data security concerns have become the main barrier to adopting CLM technology, reflecting more significant issues with AI integration. By 2024, CLM solutions will offer advanced encryption and multi-factor authentication to protect sensitive data, along with detailed audit trails to track contract activities.
Automated Workflows in contract management will streamline the entire lifecycle, from initiation to renewal. Advanced collaboration features in CLM software will enable real-time contract authoring, reviewing, and change tracking. Automation will help manage alerts and notifications, reducing the risk of missing important dates or compliance requirements.
Looking ahead, the future of contract management is promising, with CLM solutions becoming more robust and efficient, ensuring a more secure and transparent management process.
