Following the unprecedented domination of Chat-GPT and Artificial Intelligence (AI) in 2022, the entire business ecosystem has fallen into a frenzy of speculations about the impact of AI in various facets of business operations. Contract management is not to be spared in this wave, with interest in AI contracts surging dramatically in the last 12 months.
Business professionals are increasingly curious about how AI can revolutionize contract management processes, cutting down hours of negotiations and keeping risks at an all-time low.
But one of the more commonly shared speculations in the business ecosystem is the impact of AI contracts on sales processes. Considering that 40% of companies fail to meet their sales targets, it is easy to see why organizations are curious about whether AI can help them close more deals and ramp up revenue.
Here, we will explore how inefficient contract management processes impact sales and how AI contracts could be the magic wand that changes the game for sales professionals.
How inefficient contract management impacts your closing rate
Contracts play a crucial role in sales processes as they formalize agreements, offer performance guarantees, and protect the interests of all parties. However, traditional contract management is laden with so many manual, repetitive processes, from contract drafting and negotiation to storage and tracking.
These processes have struggled to keep up with the fast-paced nature of the modern business ecosystem, resulting in inefficiencies, missed opportunities, and losses.
According to World Commerce & Contracting (WCC), organizations lose about 9% of annual revenue due to inefficient contract management processes. But how does this tie directly to sales?
Let’s find out below.
#1 Prolonged sales cycles
Poorly managed contracts are often characterized by excessive back-and-forth negotiations, revisions, and approval requests that consume valuable time and prolong sales cycles.
If a customer is ready to sign an agreement, but the sales team has to wait several days for the contract to be drafted and approved by legal, by the time the contract is finally ready, the customer may have lost interest and moved on with a competitor!
“Yes, sales deals must close promptly, and legal teams prioritize the same. However, they must also ensure that contracts are future-proofed, with zero margins for error.”
~Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
Also read: Your Guide to a Flawless Sales Contract Management Process
Also read: Generative AI for Contract Management: Best Practices to Ensure Safety
#2 Inconsistent pricing terms
The overwhelming process of manually managing contracts at scale makes you prone to errors in critical areas like pricing terms. When manually updating pricing terms for multiple contracts, there's a high chance of inadvertently failing to apply the changes uniformly.
This can lead to confusion and mistrust among customers, affecting their willingness to make purchases or negotiate contracts.
#3 Missed upsell or cross-sell opportunities
The ineffective tracking and monitoring of existing contracts may cause sales teams to overlook potential add-on sales or upgrades. Without a comprehensive view of customer contracts, sales representatives may not be aware of contract renewal dates and fail to proactively engage with customers to identify additional needs they can solve with upsells and cross-sells.
This can limit revenue growth potential and hinder customer relationship development.
#4 Poor visibility and reporting
Inefficient contract management practices can lead to poor visibility into contract data and performance metrics. Without access to accurate and up-to-date contract information, sales teams struggle to track contract status, monitor their sales pipeline, or analyze contract performance.
This lack of visibility hampers decision-making processes, inhibits forecasting accuracy, and impedes strategic sales planning, ultimately impacting sales performance.
Also read: How to Use Contract Analytics Software to Uncover Insights
#5 Increased administrative burden
Manually handling contracts (e.g., drafting, routing for approvals, and version control) consumes time and resources. When companies are getting swarmed with new contracts, sales representatives may find themselves spending excessive hours on these administrative tasks instead of engaging with customers, building relationships, and closing deals.
This additional workload can lead to decreased productivity, burnout, and a drop in overall sales performance.
How AI contracts can help you boost sales
The efficiency of contract management processes can be the difference between a business that closes 100 deals a year and one that closes the same amount per month. To hit your sales targets, you must onboard a specific number of contracts within a stipulated timeframe.
However, inefficient contracting processes often slow down sales, making it difficult for salespeople to reach or exceed their targets. But thanks to the advent of AI contracts, these inefficiencies are getting relegated to the past, and forward-thinking organizations are beginning to expedite contracting processes, close more deals, and ramp up their revenue.
But how exactly are AI contracts doing this? We’ve explained it below.
#1 Accelerates contracting processes
"If you can pull up an agreement very quickly or respond to something more decisively than your competitor, you're able to get into a new market quicker or build a product more rapidly. Furthermore, if you can give insight to the board or the CEO faster, the company will also move at an accelerated pace, which I think is what we all want to do."
~ Doug Luftman, ex-DGC, DocuSign
The Key to Success as an In-House Legal Counsel & Leader
Speed is a core attribute of AI contracts. A typical Contract Lifecycle Management (CLM) system like SpotDraft automates the various processes involved in contract management, from contract drafting and negotiation to approval and tracking. But with the addition of AI, these processes become multiple times faster.
SpotDraft AI, for instance, has the added capability of generating templates from existing contracts in record time. It scans your document for variable texts like legal names, start dates, product offers, etc., and accurately assigns types to customizable elements.
With AI's ability to generate contracts accurately and quickly, sales teams can respond promptly to customer requests and close deals more efficiently.
#2 Forsters customization and personalization
AI contracts are fueled by data. Thus, they’re capable of building out contracts that meet specific customer requirements.
With AI contracts, sales teams are better equipped to leverage crucial information like purchase history, location, preferences, and general behavior in contract creation and negotiation processes. For example, they can incorporate payment terms that suit a customer's payment preferences and even identify upsell and bundling opportunities based on their purchase history.
This personal touch fosters a stronger connection and trust, increasing the likelihood of successful sales conversions and long-term customer loyalty.
#3 Improves access to insights
AI contracts can generate valuable insights by analyzing large volumes of contract data.
By analyzing contract performance, pricing trends, customer preferences, and other relevant factors, sales teams can identify factors that influence closing rates, spotlight opportunities, formulate strategies, and boost overall sales performance.
SpotDraft AI’s Smart Data Capture offers a high level of granularity, easily detecting over a thousand unique key pointers such as dates, durations, counterparties, currencies, and more across contracts to help you generate precise reports for faster and more productive decision-making processes.
The AI also allows you to ask direct questions about your contracts, like the implications of specific clauses in your MSA agreements, and get instant insights to enhance your due diligence.
#4 Reduces errors and inconsistencies
AI contracts minimize human errors and inconsistencies that can occur during contract creation or review. By leveraging Natural Language Processing (NLP) and machine learning capabilities, AI can identify potential errors, ambiguities, or omissions in contracts, ensuring accuracy and consistency across documents.
This reduces the risk of disputes and improves the overall quality of contracts, which can positively impact sales outcomes.
#5 Improves compliance
AI contracts offer an added layer of compliance assurance with legal and regulatory requirements.
AI-powered contract management systems leverage NLP and machine learning algorithms to interpret contract language and compare it against relevant laws and regulations. They analyze large volumes of contracts in minutes, identifying potential non-compliant clauses or terms.
This is beneficial for sales because customers are more confident signing contracts with companies that prioritize compliance, knowing that their rights and interests are protected. Also, by identifying potential compliance issues upfront, businesses can accelerate sales by preventing protracted negotiations or delays that occur due to compliance concerns.
Also read: What is Contract Compliance? The Ultimate Guide
Moving on
“As in-house counsel, don’t run away from AI and don’t ignore it. Rather, embrace it as, ultimately, it will allow you to do things lawyers love to do: thinking, analyzing, and counseling, while leaving the “grunt” work to the computer.”
~ Sterling Miller, CEO and Senior Counsel at Hilgers Graben PLLC
Ten Things: Artificial Intelligence – What Every Legal Department Really Needs To Know
It is important to note that while AI is revolutionizing the world of business, it does not exist to replace humans. At its core, AI is designed to help humans achieve more with less!
AI contracts are no different. They shorten negotiation and sales cycles, offer access to hyper-granular insights, ensure better accuracy and consistency, and support better sales performance. Yet, without human expertise and decision-making, AI contracts would lack the necessary context, empathy, and strategic thinking to truly maximize their potential.
SpotDraft AI is our new AI contract assistant designed to help you unlock new levels of productivity with contract management, gain access to insights at the deepest levels, and create contracts that beat the standard.
