According to the Harvard Business Review, inefficient contract management causes organizations to lose up to 40% of their value due to the challenges they encounter. The standard technology used for managing contracts introduces numerous issues, such as missed deadlines, violations of compliance and regulations, and overlooking renewal dates and renegotiation terms.
All these factors led to difficulties in locating or retrieving contracts. Furthermore—paper-based processing holds liability for errors related to contractual matters.
For instance, an organization cannot perceive the past intricacy of outsourcing agreements or examine how they wrote a specific clause across various divisions without a centralized contract base. The process of creating, editing, and finalizing contracts demands substantial manpower from businesses.
Moreover, managing numerous contracts poses significant organizational challenges for these entities. They struggle with coordination, updates are infrequent at best – often resulting in overlooked contractual obligations – due to inefficient management procedures– and effective oversight becomes an elusive goal amidst this overwhelming task load.
Businesses can conquer contracting-related challenges by harnessing the power of contract management technology. In upcoming times, possessing efficient and effective contract management will prove exceptionally crucial for businesses.
According to a Gartner report on Contract Management Software, AI-based contract analytics solutions’ adoption will reduce manual efforts for contract review by 50% before 2024. By 2023, 90% of multinational global enterprises will implement contract lifecycle management solutions.
The Changing Landscape of Contract Management
The digital transformation is the growing contract management trends, creating many new opportunities. On the other hand, the challenges in contract management evolve with business scaling.
According to researchers:
- Written contractual agreements facilitate approximately 60-80% of business transactions.
- Maintaining a standard Fortune 1000 company requires active contracts between 20,000 and 40,000.
- 90% of global businesses will implement contract lifecycle management solutions by 2023.
- According to WorldCat, companies incur a cost of 9% in annual revenue due to poor contract management.
- Depending on circumstances, organizations could experience a loss of deal value ranging from 5% to 40%, as IACCM’s research reveals.
Businesses must never view the implementation of contract management as optional. These studies strongly underscore its potential impact on overall business revenue.
As a near-future expansive digital transformation looms, these challenges could intensify – thus necessitating more robust solutions in CLM.
Top Contract Management Trends that will Rule in 2024
1. AI and Machine Learning
In 2024, CLM software will more aggressively harness the power of Artificial Intelligence (AI) and machine learning. AI, an already established technology, can help you benefit from recent advancements such as Generative AI, Applied AI, etc.
Moreover, with the inclusion of observability in this suite of tools– it shall standardize data. Automating compliance and accelerating the contracting process provide total visibility.
These innovations offer one of the key outcomes, consequently freeing up business teams to concentrate on strategic decision-making, thus elevating their focus towards higher-value tasks. Applied AI in Contract Management offers several key use cases.
Contract drafting
With AI enablement, the traditional contract drafting process, which demands significant legal expertise and time, will transform. The 2015IACCM Benchmarking Study from PWC reveals that 80% of procurement functions lack awareness of competitive terms and contract structures.
However, by 2024, CLM solutions will be ready to use advanced technology like natural language processing (NLP) and machine learning techniques to extract terms and clauses from various sources.
This includes third-party paper, legal-approved standard templates, and even high-quality legacy contracts. In your drafts, CLM Solutions, powered by generative AI, will generate new contract templates, clauses, and terms for specific contract types and business use cases. This innovation standardizes contract language and reduces contract negotiation time by an impressive 40%.
Contract review
Artificial Intelligence (AI) can identify potential risks, unfavorable terms, and deviations related to commonly used contract clauses and terms. In the process of reviewing contracts, it automatically highlights any deviations from standard language or conditions, suggesting alternative wording where necessary for more efficient negotiations on agreements.
The integration of AI into Contract Lifecycle Management (CLM) software significantly accelerates these procedures. It can reduce contract review times by an impressive 90%, processing thousands of contracts within mere hours, a vast improvement over traditional manual scrutiny methods.
AI-Enabled Analytics
AI observability enhances predictive analytics, enabling a deeper understanding of contract performance, obligations, and risks for organizations.
Legal departments harness AI to forecast potential disputes and pinpoint opportunities for cost savings. Experts anticipate that by 2024 – the adoption rate of natural language processing (NLP) in contract analysis will surge by over 70%.
2. Data Security and Compliance
A report reveals a shift in the primary challenges of acquiring contract management software. While securing a budget and enabling consensus among stakeholders remain concerns, data security has emerged as the principal barrier inhibiting CLM technology adoption, with an increase of about forty-two percent (42%). This rise may reflect more significant issues stemming from integrating artificial intelligence into numerous systems.
As we move towards 2024, the focus of implementing contract management software will be on prioritizing data security and privacy, given the sensitive nature of legal documents and client information.
Data protection
By 2024, over 90% of CLM software solutions aim to provide advanced encryption and multi-factor authentication to safeguard sensitive contract data. Additionally, purpose-built AI engines will be meticulously constructed for each customer, focusing on protecting a large volume of high-value contractual information.
Audit trails
Advanced CLM solutions provide detailed contract histories through audit trails. This empowers business teams to actively track and monitor all contract-related activities. In doing so, the company can enhance its regulatory inspection management and fortify accountability and compliance measures.
Complete privacy
Prioritizing trust and transparency in industries like real estate and finance, the value of CLM solutions lies in their guarantee. Once a contract is established–privacy is ensured through unviewable, unalterable, and untamable measures.
3. Automated Workflows
Contract managers frequently engage in collaborative work with business functions on contract-related tasks. Therefore, the latest technology platforms will always be key in CLM advancements by continually enhancing the process.
Moreover, as we look towards 2024 – when advanced collaboration features become available through updated CLM software – they are set to streamline not just parts of contractual lifecycle management but its entirety—from initiation all the way up until renewal.
CLM solutions offer dynamic workflow capabilities
Teams can automate contract routing based on contract type, vendor classification, and other rule-based approaches. The real game-changer, however, is the integration of AI processes. These facilitate automated review and approval of diverse AI-generated clauses or recommendations. By 2024, business functions will collaborate in real-time, authoring contracts, conducting reviews, and tracking changes seamlessly.
Automate alerts and notifications
One of the key features of CLM software is its ability to automate alerts and notifications. This ensures proactive management of key contract milestones like renewals and terminations and adherence to all contractual obligations.
The risk associated with overlooking important dates or compliance requirements is significantly reduced, making CLM software an invaluable tool for contract management.
Final Thoughts
The future of contract management seems to be bright. It will bring an amazingly robust and more productive CLM solution. It predicts a more secure, connected, transparent contract management services.
Norma Harris is a senior paralegal at Legal Support World, providing expert legal support to clients. She is a passionate writer with a keen interest in the latest legal topics and trends. Combining her legal expertise and excellent writing skills, she produces insightful content that engages and educates readers. Her articles are known for their clarity, accuracy, and informative nature.
Contract management stock image by metamorworks/Shutterstock
