The Rising Importance of Contract Analysis to Mitigate Risks for Large and SMEs

Contract Analysis

Contracts, once signed, are usually overlooked or pushed behind rows of dusty files. Or they are lost amidst millions of other documents stored in your cloud. Little did companies realize that contracts are a goldmine of information reflecting every transaction, objective and target in the shape of contract clauses and potential partnership details. Contract Analysis –

Since contracts are legal documents, tracking their content becomes difficult, especially when you have human resources taking care of it without a good understanding of legal terms. Hence, a continuous, real-time contract analysis has become the need of the hour.

Only AI-powered contract analysis software can adhere to the present requirements.

What is Contract Analysis?

Contract analysis examines each term, condition, and clause mentioned in the contract and tracks the information, breaking them into smaller parts to better understand them.

The comparative and comprehensive analysis of contracts fetch valuable insights and helps businesses to unlock opportunities for improvement and growth with current or future partners. Also, contract analysis ensures the objectives are delivered on time, in the alignment of compliance and legal terms. It gives an overview of what’s already delivered and what is pending.

Contract analysis should be a continuous practice throughout the contract lifecycle to help businesses protect their firm’s interests and negotiate better deals in the future.

Why is Automated Contract Analysis Better than the Manual Approach?

Enterprises are struggling with the legacy approach to contract analysis and review. Some of these challenges, as mentioned below, are creating bottlenecks preventing businesses from timely adhering to the terms and conditions.

Large Turnaround Time – A typical contract analysis and review is time and effort-intensive. Hence, lawyers consume much time reviewing them, section-by-section, page-by-page, before the key clauses and elements are distilled out. Similar contracts do not help reduce the turnaround time because every individual contract has unique clauses to consider.

Labour and Time-Intensive – A manual approach to contract analysis is labour and time-intensive. Hence, too much effort and labour are invested in completing the contract reviewing process on time.

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Human Errors – Manual contract analysis leaves enough room for human errors and granular details overlooked.

Large Contracts and Huge Volume – A typical contract contains hundreds or even thousands of pages, which takes much time, even for a seasoned lawyer. Likewise, handling more than one contract manually exceeds an average human capability, thereby adding to the turnaround time. Also, conventional software cannot handle a sudden surge in volumes. It is often noticed that big companies struggle to complete reviewing of contracts on time, which transcends into millions of backlog contracts waiting to be processed.

Cost-Intensive – Lawyers charge hefty prices to review contracts, which add to the company’s operational cost.

Contract Complexities – Contracts are complex due to structural complexity, involvement of multiple parties, terms and conditions mentioned in local languages, or several versions and amendments of the same contract existing simultaneously.

Considering the growing complexities in the contract review domain, companies are increasingly looking for automated contract analysis solutions to curtail any unnecessary disruption in the delivery process.

AI Contract Analysis and Risk Review – The Best Step Forward

Inefficient  causes businesses to lose value on a given client deal by 5-40%. The main challenge arises when legal teams have to analyze bulk contracts, which makes extracting data a humongous task in the absence of a proper database.

This is where legal  software can address the complexities without hindering the natural flow of work.

  • An intelligent software identifies and extracts key clauses from bulk contracts in a few minutes.
  • The software is designed to mitigate any contractual risk arising out of mismatched terms and conditions by comparing and outlining granular disparities in the clauses.
  • Further, automated contract analysis enhances contract review and analysis, thereby reducing the overall contract negotiation cycle.

How does Legal  Software Help Businesses?

Automated  caters to the following responsibilities initially handled by legal teams.

  • Due Diligence – A software powered by AI and ML technologies captures supplier, customer and regulatory obligations to synergize clauses or terms during post-mergers.
  • Extracting Data from Lease Document – Lease documents are usually lengthy and contain granular data, which can miss out on valuable information when extracted manually. An intelligent software aptly extracts key information and isolates them from the rest of the content for users to analyze.
  • Easy Management of Third-Party Contracts – Third-party contracts follow different templates. Hence, identifying them and extracting information from bulk contracts consumes valuable time, leaving mindless errors. A contract analysis software can easily identify and understand third-party terms with ease.
  • Compliance Regulations – An AI-powered software adheres to rapidly changing compliance and regulatory environments.
  • Mitigating Financial Risks – There are hidden opportunities in legal contracts which can transcend into profitable gains if assessed properly. Manual contract analysis is likely to miss out on such hidden scopes in clauses. Hence, an intelligent and automated solution can fill the gap to capture lost revenue through various discounts and refunds.
  • Mitigating Other Risks – Asoftware can easily unearth hidden risks and deviations from standard objectives and save a business’s revenue interest during contract negotiations.
  • Contract Separation during Divestitures – Separating contracts require departments to work together to understand assignability rights in the contracts. Manually, the entire process becomes cumbersome, labour and time-intensive. A  software is used to offset that and monitor every change of control. It aptly identifies whether the contractual obligations lie with the divested entity or the parent company.
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Benefits of AI  Software

Top-notch contract analysis software leverages Machine Learning and Artificial Intelligence to extract insights from various contracts and legal documents. Such legal contract tools can benefit businesses in the following ways –

  • Risk reduction: The AI-enabled tools ease the reading and interpreting of legal documents to address and mitigate any revenue leakage assuring accurate and timely recognition.
  • Assured compliance: A contract analysis software eases compliance verification to accelerate updates by linking various document sources.
  • Increased versatility and visibility: With document extraction, a contract analysis software searches and retrieves information from granular data.
  • Improved time management: The AI-enabled software saves experts’ time when dealing with bulk documents on an ongoing basis.
  • Minimal IT intervention: The tailored system is configured to align business objectives to minimize IT intervention.

Contract Analysis – A Smart Way to Analyze Legal Contracts

It goes without saying that an AI-enabled contract analysis software is an intelligent way of addressing contract review workloads. Besides negating the labour, time, and cost-intensive process, such platforms help businesses tap into hidden opportunities in the client contracts and negotiate their terms better in future contracts.


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