Harnessing Contract Data Extraction for Business Success
Contracts are an important part of every business and often touch on all kinds of business functions, from sales and HR to procurement and facilities management. They play a pivotal role in the operation of different business units. Whether dealing with a high volume of lower value contracts or a small number of critical ones, managing contracts well is critical for business success.
If drafted and managed badly, a contract can lead to huge detriments to a business. For example, a multi-year, auto-renewing contract may require the purchase of goods or services or the lease of plant or property — should these no longer be required, the supplier can require that a business keeps on paying for these regardless of whether they are needed. On the other side, a well-managed contract can have positive benefits, like a multi-year fixed pricing agreement that can see your business paying markedly less than market rates for products and services.
All too often, businesses miss out on these benefits due to poor contract management. The complexity and length of contracts often lead to them being set aside after signing, only revisited in cases of disputes or cancellations. This can result in avoidable costs and missed opportunities for businesses.
With contract data extraction technology such as Xtracta’s now becoming available, there has been a growth in software and services designed to help businesses optimally handle their contracts. Contract data extraction software uses AI to extract key information from contracts, providing a time-saving solution that helps businesses overcome challenges and realise the opportunities of optimal contract management. When coupled with other software and services, this technology can help businesses deliver accurate insights, better planning, and improved reporting. This guide explains how contract extraction can help your business better manage risk and contract compliance, stay on top of invoices, and improve overall contract management.
How does automated contract extraction work?
Typically, a contract is drafted through a negotiation process between the parties to that contract. This can often include a business’s external counsel, internal counsel, and/or individuals from the business unit to which the contract pertains. Once signed, most businesses simply put the contract into a document management system or shared drive, where it will sit dormant and forgotten—especially in environments with high staff turnover.
The optimal way to manage contracts is to constantly check and ensure that the business’s needs, future plans and strategy, and commercial interactions are in line with its contracts. Contract automation uses AI-driven algorithms to read and analyse contracts and agreements, extracting key data points and clauses relevant to a variety of monitoring and analysis tasks. Advanced machine learning models today are highly effective at capturing contract data based on the specific parameters and information requested. Contract extraction software knows where to look and what to look for, even interpreting the data it has collected.
Optimise your contract management process with Xtracta
In the digital age, contracts tend to be uploaded to the cloud and left unorganised or even forgotten. Contract automation makes full use of the online archive that businesses compile in their lifetime by enhancing visibility over all aspects of a contract.
Contracts are the backbone of any business, and managing them efficiently can provide a significant competitive advantage. One of the most critical aspects of contract management is to know when contracts expire and renew. For contracts with customers, this provides an opportunity to engage with clients to ensure an optimal renewal – for example, to ensure prices are increased rather than just “rolled over”. For supplier contracts, it could be to ensure that services which are being provided but may be redundant are not automatically renewed. Using tools such as SharePoint or even a simple spreadsheet or database, organisations can make a schedule of contract expiry and renewals and any required notice period(s), ensuring that discussions can be held with any planned changes with the counterparty are done at the correct time. There is also a range of specialised software for managing contract renewals that Xtracta’s data extraction service can be combined with.
Knowing when changes and actions are due enables businesses to move strategically by evaluating supplier performance and making proactive, informed decisions. Automatic renewals that continue without input from the business or, when unintended, can be costly—utilising automated contract extraction technology can prevent this.
Contract pre-reviews for proactive risk management
Almost all commercial contracts include key clauses like liability, dispute resolution, and governing law. Common clauses can only be found in contracts typically seen in different areas, such as a property lease containing information about tenancy requirements or a facilities management contract including certifications of those providing the services.
Typically, while senior team members in a business unit who are negotiating a contract have the ability to ensure that agreed commercials are correct in the contract at hand, they may lack the legal expertise to be able to properly determine if the other clauses are acceptable to their business. As such, they will typically call on internal or external counsel to assist with the review of the remainder of the contract, especially when the contract has not been drafted or is a template from the business. This imposes a direct cost on the business as contracts need to go backwards and forwards through the typical “redlines” process, eating up time (and incurring cost) with internal or external counsel as they are reviewed and negotiated with the counterparty.
Businesses will usually have some standardisation of what they will accept for different common clauses. For example, they may allow limitations of liability but only up to a certain amount or certain countries’ laws as acceptable for the governing law. This could even change depending on other factors, such as the value of the contract or the types of services covered by it.
After choosing a preferred supplier, contracts may include clauses that have a glaring incompatibility with a business’ standards, such as those related to liabilities. Typically, this would require a business counsel to spend time responding to the counterparty on basic items. To prevent this and avoid potential back-and-forth correspondence between business and supplier, contract extraction software can pre-review contract documents to screen them for risks and compatibility with key clauses.
Digital document extraction software can recognise the level of risk an organisation is willing to accept and interpret a contract accordingly, producing a risk analysis. Feedback can then be passed to the counterparty for contract revisions to be made before even engaging a business’ internal or external counsel. Whether it’s for a specific clause or a general overview, contract automation is an invaluable time-saving tool.
Avoiding invoice overcharges
Another area of business operations which contract automation can assist with is ensuring that the invoices paid for a service match the agreed and contracted prices for those services. Overcharged invoices are prevalent throughout almost all industries and can slip under the radar without close, regular examination of contracts and comparison with invoices; this type of close monitoring isn’t always feasible for larger organisations that deal with a high volume of recurring contracts.
Whether the excess payment was an anomaly or part of an ongoing issue, contract extraction technology enables businesses to swiftly and comprehensively investigate the issue by cross-referencing the contracts with invoices.
By providing visibility over specific services and their corresponding rates, the risk of overpaying is reduced. In the event of any payment discrepancies, the business can equip itself with the values and data needed to recover the overcharged funds. Contract extraction, therefore, not only saves time but can also lead to potential refunds, delivering a clear return on investment.
Contact an Xtracta expert today to learn more about how contract extraction can be used to optimise business outcomes.
