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The Cost of Contracts: Why Choose an AI-Based Contract Management Platform

, , | March 31, 2021 | By | 2 min read

This is a featured article for the Association of Corporate Counsel (ACC) Tampa Bay chapter’s newsletter series.

Contracts are undoubtedly one of the biggest revenue drivers for businesses — yet, quantifying their value is often still difficult. If you’re unsure how to justify the cost of a new contract management platform, consider these statistics on the consequences of poor contract management — and how AI-based contract management software can boost revenue, productivity, and compliance:

Contracts are the Backbone of Business

From deliverables to timelines to payment terms, contracts govern every detail of business relationships. In fact, contracts are so vital to conducting business, research shows that:

      • A typical Fortune 1000 company manages 20,000-40,000 active contracts at any given time. Between globalization and technological advancement, companies are not only managing more contracts, they’re also managing contracts with increasingly complex terms and conditions. As contracts become more difficult to manage — and legal teams struggle to keep pace — contract management platforms will continue to play a crucial role in mitigating compliance risk and preventing revenue leakage for enterprise companies.
      • For some industries, vendor and supplier contracts compose 90% or more of annual revenues. While many companies still view contracts as an administrative headache, employing a risk-versus-opportunity-based contract management approach transforms contracts into valuable business assets. When companies have full transparency into their contracts, they’re more equipped to renegotiate more favorable terms, discover upsell and cross-sell opportunities, and terminate contracts that are no longer delivering value.
      • On average, 18% of an enterprise’s sales cycle is attributed to contract creation, negotiation, and approval. From contract creation to negotiation to signing, contracting processes are time-consuming — in fact, it takes approximately 20-30 days for a company to create, negotiate and finalize a contract according to Aberdeen Research, largely because of the departmental collaboration required to move contracts through signing. However, time isn’t on the sales team’s side: Every day a contract spends in negotiation or approval adds risk of the deal falling through — but effective contract management can drastically shorten the lifecycle and help you capture revenue faster.

Inefficient Contracting Processes Take a Toll

Contract management inefficiencies have damaging consequences, ranging from revenue leakage to missed deadlines to litigation. Research shows that:

      • Poor contract management costs companies an average of 9% of their annual revenue. No two contracts have the exact same pricing structure or terms, and the more contracts you have to manage, the more likely you are to overlook financial risks. Leakage can be directly financial — e.g. invoicing errors or unfavorable payment terms — or more indirect, like contractual obligation misunderstandings, which can erode business relationships and hinder renewals.
      • 71% of businesses can’t locate at least 10% of their contracts. Filing cabinets, shared drives, email attachments, and other manual storage systems may work if you only manage a few contracts, but it’s unsustainable for larger contract volumes. Without visibility into your contracts, you may be at risk for violating contract terms, missing renewal dates and other key deadlines, or litigation
      • Over half of corporate litigation cases are related to contract disputes. Whether it’s a misunderstanding over pricing or even misplaced punctuation, contract disputes are one of the leading causes of litigation. To avoid litigation, both parties need to be specific about expectations, then exercise due diligence throughout the entirety of the contract — including after signature.

Why AI-Based Contract Management Platforms are the Solution

Instead of letting contracts sit stagnant, more companies are turning to AI-based CLM platforms to accelerate their contract lifecycles, reduce costs, and mitigate risks. Research indicates:

Despite how important contracts are for the bottom line, few companies are managing them well — but those using AI-based CLM platforms are realizing more value with their contracts. Schedule an IntelAgree demo today to learn how our AI-based CLM platform can transform contracts from burdens to business-drivers.