Managing contracts efficiently represents a competitive advantage when it comes to negotiating, closing deals, and being in compliance. Contracts are often complex and time-consuming, but advances in AI technology in recent years offer alternatives to streamline the contract review process.
Think of efficient contracting as a strategic approach to save your own time, money on lawyers/traditional law firms, and overall resources. In facr, AI-powered contract review software has the capability to speed up the review process, reduce errors, and ensure every agreement aligns with your business goals.
In this guide, we’ll walk you through what contract efficiency is, why it matters, how to measure it, and how AI can transform your contracting process. Whether you’re an entrepreneur or a contract manager, we want to give you the insights and tools needed to maximize contract efficiency using AI.
What is contract efficiency?
Contract efficiency refers to the ability to manage and execute contracts in a way that maximizes productivity while minimizing costs and time. At its core, efficient contract management involves creating, reviewing, negotiating, and executing contracts in a streamlined and effective manner.
In the business context, contract efficiency means:
Reduced costs. Efficient contract management reduces the need for prolonged legal consultations and the associated expenses. Streamlining the contract review and approval processes helps businesses cut down on costs typically incurred through manual tasks often handled by expensive law firms.
Remember, understanding contract review costs is just as important for resource allocation. It’s essential to identify the costs associated with manual reviews, including legal fees and administrative expenses. Compare these with the cost-effectiveness of using AI-powered tools to see where you can save.
Improved compliance. A well-managed contract process adheres to regulatory requirements and internal policies. This approach reduces the risk of non-compliance, which can lead to costly penalties and damage to the company’s reputation.
24-hour turnaround times. By optimizing the contract lifecycle, from drafting to final approval, businesses can close deals faster. This agility is crucial in competitive markets where speed can be a decisive factor in securing new opportunities and maintaining customer satisfaction.
The business impact of efficient contracting
Efficient contracting plays a critical role in the overall success and stability of a business. Managing and executing contracts smoothly allows organizations to mitigate risks, maintain compliance, and foster stronger business relationships. Here’s why efficient contracting is so important.
Mitigating risks. Inefficient contract management can lead to significant risks, such as missed deadlines, overlooked clauses, and unfavorable terms. An efficient contracting process identifies and addresses potential issues early, reducing the likelihood of disputes and financial losses.
Compliance. Adhering to regulatory requirements and internal policies is essential. Efficient contract processes align every agreement with the necessary standards, minimizing the risk of non-compliance. This is particularly crucial in industries with stringent regulatory environments.
Better business relationships. Efficient contracting makes agreements clear, fair, and promptly executed, which all in all helps build trust and foster long-term partnerships. When partners and clients experience smooth contract processes, they’re inherently more likely to engage in future collaborations.
On the flip side, inefficiencies in contract management can lead to several detrimental outcomes. Prolonged contract negotiations and reviews often result in higher legal fees and operational costs, and missed opportunities and revenue losses. Slow contract turnaround times can delay project kickoffs, product launches, and service delivery. Additionally, poorly managed contracts are more likely to contain errors or ambiguous terms. Efficient contracting is meant to minimize these bottlenecks.
One of the best ways to boost contract efficiency is taking a closer look at your approval process. It’s essential for getting things done quickly and properly. First, establish clear guidelines for who needs to approve contracts. Then, automate the approval workflow to cut down on delays. Tools that allow for electronic signatures and real-time tracking of approval stages can make a world of difference.
How to measure contract efficiency
Do this to gain valuable insights into your business contract management practices.
- Define your metrics. First, identify the key metrics that will help you gauge contract efficiency. The primary metrics to focus on include cycle time, error rates, compliance rates, and cost savings.
- Collect data. Next, gather data on your current contract management process. Track the time taken to draft, review, negotiate, and approve contracts (cycle time). Record the number and types of errors found during the review process, compliance issues, and any associated costs.
- Analyze cycle time. Calculate the average cycle time for your contracts by measuring the duration from the initial drafting to the final approval. Shorter cycle times indicate higher efficiency. Break down the cycle time into different stages to pinpoint any bottlenecks in the process.
- Monitor error rates. Keep track of the number of errors identified in your contracts during the review process. Categorize these errors to understand their nature and frequency. A high error rate suggests areas where additional training or improved processes may be needed.
- Assess compliance rates. Evaluate how well your contracts align with regulatory requirements and internal policies. Review completed contracts to check if they meet all necessary standards. High compliance rates reflect an effective contract management process.
- Calculate cost savings. Analyze the financial impact of your contract management practices. Consider legal fees, administrative tasks, and any penalties due to non-compliance. Compare these costs against those incurred before implementing efficiency improvements to quantify cost savings.
- Implement improvements. Based on your analysis, identify areas where your contract process can be improved. This might include adopting new technologies like AI contract review software, providing additional training for your team, or streamlining specific stages of the contract lifecycle.
- Set benchmarks and goals. Establish benchmarks based on your current metrics and set realistic goals for improvement. E.g., aim to reduce cycle time or error rates by 15-20% over the next quarter.
- Regularly review and adjust. Continuously monitor your metrics and review your processes regularly. Make adjustments as needed to drive ongoing improvements in contract efficiency. Use the data collected to make informed decisions and keep refining your approach.
Strategies to improve contract efficiency
Enhancing contract efficiency involves implementing actionable strategies that streamline the entire contract management process. Here are some effective approaches to consider:
Implement standard templates and a checklist. Creating and using standard templates for common contract types can significantly reduce the time and effort needed to draft new agreements. These templates should include pre-approved language and clauses that meet your business’s legal and regulatory requirements. With standard templates and a solid contract review checklist in place, businesses can make their contract management processes more efficient, consistent, and error-free.
Regular training. Continuous training is essential for keeping contract managers up-to-date with the latest best practices, legal requirements, and technological advancements. Regular training sessions equip your team to handle contract negotiations, reviews, and management efficiently. Investing in training fosters a culture of continuous improvement and excellence in contract management.
Automate workflows. Automation can transform the contract management process by reducing manual tasks and speeding up workflows. Tools that automate contract creation, routing, approvals, and notifications can save valuable time and minimize human errors. Automated workflows move contracts seamlessly through each stage, from drafting to execution, without unnecessary delays.
Leverage AI contract review software. Integrating AI contract review software into your contract management process can boost efficiency. AI can quickly analyze contracts, identify potential risks, and verify compliance with legal standards. It can also highlight key terms and clauses, making it easier for you to focus on strategic decisions rather than getting bogged down in routine reviews.
The role of AI in contract review
AI-powered tools, like Superlegal, can revolutionize the contract review process For instance, traditional contract reviews can be time-consuming, often requiring meticulous manual scrutiny. AI contract review software accelerates this process by rapidly analyzing large volumes of contracts and identifying key terms, clauses, and potential issues. This allows contract managers to focus on higher-level tasks, dramatically reducing the time needed to complete reviews and enabling faster deal closures.
Manual contract reviews are prone to human errors, which can lead to costly mistakes and legal complications. AI tools minimize these risks by consistently applying predefined rules and checks.
Keeping up with ever-changing regulations and ensuring that contracts comply with legal requirements can be challenging. AI-powered contract review software continuously updates its knowledge base with the latest regulatory changess. While AI tools can handle much of the heavy lifting, having an attorney in the loop to approve each contract adds an extra layer of assurance. Superlegal’s AI contract review software incorporates this capability to review AI-flagged issues and approve final versions.