The IT and procurement departments of most businesses are considered cost centers, but AI-driven contract intelligence may turn that notion on its head. Artificial intelligence contract analysis can help you find opportunities to lower costs and increase revenue using the data hidden deep in your contracts.
Key Cost Factors in Contract Management
In addition to providing actionable insights to help you lower operating costs, artificial intelligence contract review can also help reduce cost factors directly associated with contract management. The primary expenses related to contract management include:
Contract complexity: The more complex contracts you use — and the more they deviate from the industry standard — the more resources you’ll have to devote to drafting, negotiating, and monitoring them.
Contract volume: If your finance department deals with a high volume of contracts, they’ll need to dedicate more time and resources to managing and optimizing them.
Technology and training: Contract lifecycle management software is more accurate and efficient than manual review and can provide better insight into areas such as procurement costs, but you’ll have to pay upfront costs to obtain it and train your staff on its use.
Strategies for Cutting Costs With AI Contract Intelligence
As outlined above, contract management has significant costs. However, implementing artificial intelligence in contract management can lower those direct costs as well as uncover other areas where you can save money. Here are five effective strategies for optimizing cost management with intelligent contracts.
Use Automated Contract Analysis
Contract AI software can rapidly review and analyze a tremendous amount of contract data. It uses natural language processing (NLP) to identify key terms, such as price, product, and stock-keeping unit (SKU), far faster and more accurately than a human can. You’ll reduce the time and labor needed to review and extract contract data and free up your procurement staff for higher-value tasks.
A contract intelligence solution also guarantees consistency in standards and policies across all contracts. This enforces best practices and minimizes errors and discrepancies that can cause expensive disputes or compliance infractions. It can also track and alert you to critical dates and contractual obligations so you won’t miss deadlines or incur penalties.
AI tools incorporate machine learning to continuously learn and improve. As a result of these integrations, they become more efficient over time. Integrating AI-based contract management allows you to streamline processes and reduce the costs associated with manual contract analysis and management.
Use AI Algorithms To Identify Cost-Saving Opportunities
AI uses algorithms to detect inefficiencies, such as overpriced products or unfavorable terms, and the software can make suggestions for how you can negotiate better outcomes and reduce costs. AI algorithms can also benchmark your contract terms against industry standards. This information can help you identify areas where your contracts may fall short. You can use this data to renegotiate terms or find suppliers with better rates.
Advanced analytics solutions can analyze past contract performance and highlight vendors or terms that consistently lead to higher costs or risks. Using this type of predictive analytics data lets you make informed decisions about future contracts to reduce costs.
Improve Visibility Into Contracts
The upheaval in the supply chain of the past few years highlighted the importance of visibility in this sector. The importance of supply chain visibility extends to your contracts.
Contact intelligence platforms provide a centralized location and serve as a single source of truth for all your contract data, making it easier for your contract managers to track obligations and deadlines. From here, you can monitor contract performance and compliance more effectively to reduce risks.
With improved visibility, you can proactively manage contracts and make timely interventions as needed. This reduces the likelihood of additional costs due to non-compliance or contract breaches. AI-driven dashboards and reports provide real-time insights into the status of your contract and potential financial impacts. You can use this information to underpin better decision-making and resource allocation.
Mitigate Risk Exposure
One of the benefits of AI contract analysis is that it’s always on the job. It works around the clock to continuously assess and monitor your risk exposure, checking for ambiguous clauses, non-compliant terms, poor renewal management, and other issues that could result in financial losses.
When warned about these risks early, you can rectify them before they escalate into costly problems. Taking a data-backed, strategic approach to contract renewals gives you leverage to negotiate better terms and lower costs. It also reduces liability and expenses related to lapsed contracts and procurement delays.
Predictive analytics takes risk mitigation a step further by predicting future risks based on historical data and trends so you can take preventative measures. This predictive capability helps you avoid unforeseen expenses and disruptions.
Streamline Contract Management Processes
AI contract intelligence software streamlines all aspects of contract lifecycle management by automating routine tasks and eliminating the need for manual intervention in many processes. AI tools can handle contract creation, review, and approval workflows by automatically routing contracts through the next step.
Automation eliminates the possibility of a contract getting stuck in one stage because it was lost in someone’s inbox. It minimizes human error and accelerates the contract lifecycle, so you can close deals faster.
Having a centralized location for all contracts also makes it simple to search and retrieve documents. You’re not limited to an exact match for a specific phrase with contract intelligence platforms, either. You can search contract clauses and data based on use cases and intent. This reduces the time spent on manual searches and provides critical information as soon as needed.
Discover How Terzo Can Drive Substantial Cost Savings
Contracts are no longer solely relegated to finance or procurement teams. When contract data isn’t handled effectively, it’s a leadership issue.
At Terzo, we’ve created a financial business intelligence platform that helps you continuously improve your financial results. The world’s largest businesses trust us to help them unlock valuable insights from their data that increase profitability and reduce risk. Contact one of our experts today to find out how we can do the same for you.
