We hear about contract AI being used in new and innovative ways to improve our contracting processes. That said, what exactly is it?
A contract AI solution is your behind-the-scenes pit crew, helping you wade through the piles of legal documents and digest their precise terms and clauses. It helps you interpret an agreement’s contents, saving time and mental energy and ensuring contract procurement.
In other words, it supports and streamlines contract processes.
If all the chatter around the arrival of AI has left you curious, you’ve come to the right place.
Here, we’re looking at the definition of contract AI, its use, and its benefits. Let’s get started.
What is contract AI and what is it used for?
Contract AI is the use of AI technology to assist lawyers with everything from gathering contract information to supporting workflow automation. It can make every step of the contract lifecycle process run faster and smoother.
First, let’s take a step back and look at what exactly AI is.
AI in contract management uses natural language processing (NLP) to understand contract information. It then uses machine learning (ML) to build an algorithm. This algorithm learns how to read new contracts by parsing through a database of your existing contract data.
From these legacy contracts and any pre-approved guidelines you establish within the software, AI tools develop an “average” or baseline that they compare to new contracts. This comparison allows AI tools to identify specific terms and clauses, flag potential risk areas, and extract contract information. Take a look at this example:
A legal team is in the midst of a contract’s review stage. They’ve created a new contract and nearly finalized the document’s obligations. The only thing left is ensuring they’ve clearly defined its terms, dates, and requirements before it’s signed. The team relies on human review to spot potential risks, unclear terms, and discrepancies. Not only is reviewing the agreement by hand a long and tedious process but there’s also the increased risk of human error and oversight that could result in costly setbacks or confusion.
“Try to glean as much info about what causes friction as possible. Your biggest wins will come from addressing these knowledge gaps or hesitancies that are blocking/slowing deals.”
~ Sue So, Head of Legal, Hopin
Commercial Contract Management in Hypergrowth Startups
Contract review, or anywhere else in the contract lifecycle, is not where you want to miss discrepancies that could stall the process later. AI revolutionizes this entire approach.
Instead of reaching for another cup of coffee to help them stay focused, legal teams can run a fresh contract through a contract lifecycle management (CLM) tool using AI to instantly spot discrepancies. No time is wasted. The CLM tool will automatically flag any potential problem spots, saving an unprecedented amount of time.
Tools like SpotDraft use a Smart Data Capture feature to pull contract metadata and, within minutes, concisely summarize its findings. It provides thorough summaries to ensure you understand the reasoning behind its suggestions.
4 benefits of using contract AI software
Implementing contract AI is a significant change for most companies. While a daunting investment, it can give you the tools and accuracy you need for rapid business growth through digital transformation.
Here’s a snapshot of some of the benefits you can expect when you use AI for contract management.
#1 Run a faster contract management process
The amount of time it takes AI to review and handle a contract is negligible compared to the time it takes a human. Most AI tools can look over a contract and recommend changes in minutes. It might take a human an hour or more to thoroughly examine the entire agreement. AI saves teams valuable time that they can spend focusing on work that can propel the business forward.
For example, consider the contract negotiation stage. Both parties review contracts, redlining any areas that warrant further discussion. A contract management software that utilizes AI can generate accurate agreements based on contract templates. As a result, reviewers spot fewer places within the contract that need adjustments, allowing the approvals process to continue without setbacks.
Also read: How to Boost Sales with AI Contracts
AI helps you scale contract creation, too. As a business grows, the number of contracts it creates grows. However, if every contract requires by-hand review and processing, how many contracts you can process at once will plateau. In saving you time, AI contracting tools free up your schedule so you can process more contracts than ever before.
#2 Spot mistakes sooner for better risk mitigation
Another way AI improves contract management is by helping find risk factors early in the contract process. As mentioned before, AI uses NLP to pick up on key terms and clauses within a contract to establish an average. The more contracts within a database it has to review, the more accurate this average becomes. As a result, it’s better able to flag discrepancies within new contracts.
“First, build out a workflow considering all the risks involved. Conduct training sessions with stakeholders and ensure they are comfortable using the CLM tool. The next step is to create a speck document with clause variations in different scenarios. Train the growth teams to refer to the speck document and make necessary changes to the contract, as needed."
~ Nadia Louis Hermez, Legal Ops Manager, Next Insurance, Inc.
Building a Robust Legal Ops Function
Instead of relying solely on legal teams to parse through headers and large blocks of jargon-heavy text, AI can get an accurate read on possible problem spots fast. By using named entity recognition (NER), it can pinpoint contract metadata like names, dates, monetary figures, and any other specific details you’ve trained the AI to look for. All this data combined creates the aforementioned average.
You can also train the AI to capture specific clauses within each contract, anything from data related-text to termination, confidentiality, and dispute resolution. Take this a step further to capture more objective data like syntax, context, and grammar. Between identifying unclear terms and flagging inaccurate clauses, AI helps improve risk mitigation.
SpotDraft developed the Advanced Search feature to help you spot mistakes and conduct seamless risk mitigation. It streamlines the process of identifying key contract information and flagging areas that might require modification, depending on the customer. You can gather all these contract analytics together to find unique insights you likely wouldn’t have caught by hand.
#3 Improved consistency across contracts
It’s important that all your contracts follow the same style and template. However, if your legal team is responsible for ensuring this consistency by hand, you’re potentially wasting valuable time and increasing the chances of human error.
AI technologies help make sure all your contracts look the same. You can rest assured that AI-generated contracts abide by specific templates, regulatory guidelines, and laws.
AI can also help quicken your pace when drafting fresh contracts. Based on existing similar contracts, a CLM tool that uses AI can generate a new contract. It will pull in necessary legal language automatically, saving you from having to dig it up by hand. Within moments, a new and accurate contract is at your fingertips.
“The absence of contract templates leads to non-standardisation and makes contracts prone to errors. The legal team, therefore, is required to delve deep into contracts and proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.”
~ Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
Consistent contracts are as important for streamlining processes as they are for optics. In the eyes of your customers, consistent contracts establish trust. This makes you look professional and reliable.
#4 Boost contract accuracy, decrease human error
When you automate the contract lifecycle process, you remove the risk of human error. Any prior assumptions or experiences that could influence a human’s review of an agreement are no longer a risk factor. AI leans on logic and standards set forth by you, ridding the process of the potential for human error or inconsistent judgments.
If you take this reasoning a step further, you can use AI to process a huge number of contracts. There are limits to how many contracts a human can accurately review by hand. With AI, the limit doesn’t exist. It boosts the likelihood that your contracts will have consistent formatting, standardized terms and clauses, and superb readability, along with ensuring compliance and regulatory requirements.
“With rapidly evolving technologies, the legal framework tends to lag behind. Whenever there is any amendment in a related regulation, you should be able to suggest necessary changes to the product team to ensure compliance.”
~ Juliette Thirsk, Head of Legal, Peach Payments
Streamlining Legal at a FinTech Startup
For example, implementing contract AI for contract analysis gives you the data you need to make clever business decisions. You can spot consistent sticking points during the contract’s lifecycle and address discrepancies in a timely manner.
What are the types of contract AI software?
Contract drafting software
Contract drafting tools step in during the contract creation process. The tool reviews each drafted contract to ensure it hits on specific terms and uses language to boost accuracy. It saves legal teams time by scanning the contract and recommending changes.
Contract drafting software builds a foundation for a cohesive contract management process. SpotDraft helps teams create high-quality contracts using templates. You can create a new agreement in moments, and rest assured that SpotDraft’s built-in legal guardrails will cover your regulatory compliance bases.
SpotDraft helps you create precise and accurate contracts in moments by using pre-built templates. On average, SpotDraft customers who use templates to help streamline their contract creation process close deals twice as fast as those who draft contracts by hand.
Contract review is one of the most efficient ways to use contract AI software. It relies on NLP to find and review contracts to flag potential problems. This is helpful for teams interested in scaling their contract operations. With the help of AI, the days of having to sift through piles of legal documents filled with jargon are gone.
During the contract review process, AI scans your agreement for essential terms and clauses imperative to the agreement. It highlights these problem areas for you.
Contract analysis happens throughout the contract’s entire lifecycle. It monitors potential bottlenecks and setbacks due to unclear terms or misleading clauses. It helps you identify these areas for continuous iterative improvement.
“These insights can help the legal team identify gaps in the system and work toward improving workflows and building solutions that would increase efficiency.”
~ Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
Without AI in contract analysis, legal teams would be on the hook for reviewing contracts throughout the entire process. It’s unlikely they would spot trends in discrepancies. AI does the hard work for you. It captures and stores contract information and then transforms it into actionable data points. You can use these data pieces to make smarter business decisions while improving your processes.
Contract lifecycle management
Depending on how many contracts you process, using AI to push contracts through the lifecycle could be a game changer. It reduces the amount of work required by your entire team. You can process and track more contracts in less time. AI will flag potential risks and ping signers when they need to take action and ensure a contract stays on track.
Manage all your contracts in one place with SpotDraft
How companies use AI in their contracting processes will evolve as technology improves. Getting started using a tool that uses AI to support smoother workflows and improve contract accuracy is essential.
SpotDraft is your one-stop shop for contract management. It’s an easy-to-use hassle-free CLM tool powered by AI technology to automate repetitive tasks and provide easier accessibility.
So, are you ready to build a cohesive and smooth contract management process? Head over to SpotDraft for a free trial today.