Every organization has business relationships with Vendors, Partners, Customers, and contracts are the most important instruments for establishing the business relationship and establishing the performance obligations of the parties involved. Depending on the type of business an organization is into, there can be outbound contracts (to the market) and inbound contracts (from the market).
In most circumstances, if any organization is entering into a business relationship with a customer and selling their products or services then standard legally vetted agreement or contract templates are used to forge the relationship. Similarly, when an organization is buying services or products from another vendor then the organization enters into an agreement with the vendor based on the vendors’ standard agreement. In some cases, even when you are selling products or services to another customer there are chances that you are accepting the customer’s standard agreement terms in which case you are considered as accepting a third-party paper.
In the majority of the cases, before getting to the final stages of the agreements there is a back and forth between both parties in terms of reviewing the terms of the agreement, going over the clarifications, negotiating agreement terms, and finally signing off on the agreement. Once the agreement is executed it is safely stored in emails or network drives or FTP locations or any cloud repositories (for example, Dropbox, Box, Google Drive, AWS, etc).
According to PC Magazine, it is estimated that across the world around 60% of the companies still use email to manage their contracts while 35% are using digital contract management tools and around 5% of the companies do not follow any contracting process yet.
There are a lot of data visibility issues within the contracts even after organizations adopt digital contract management systems. Most of the tools concentrate on automating the business process like drafting the contract with the appropriate clause language, helping with redlining, enabling workflows to automate the flow of information between different stakeholders, helping with signing the contract digitally using e-signature, and finally creating a contract repository. But there is not much focus on how to handle legacy contracts executed away from the contract management system or understand what is inside the third-party contracts every organization accepts.
What are the scenarios that create a need for Contract Analytics? We have researched various scenarios that resonate with organizations irrespective of whether they are using a contract automation process or not and here are some scenarios that demonstrate the need for using contract analytics software.
Scenario 1 – Scattered Contracts Repository
Imagine an organization that has multiple departments and operations in multiple locations or regions across the world. Due to the nature of their business or operations, they have a need to enter into business relationships in different regions, and hence there is a need to enter into contracts with their vendors, suppliers, and customers. Once the contracts are signed they are stored in different repositories across different regions depending on what is suitable and convenient to the organization units in each region or location. This creates a lack of visibility at the level of the contract itself and there is no way to get any visibility inside the contract documents.
Scenario 2 – Non-Searchable legacy contracts
This applies to companies who have been in business for a long time and have adopted contract management practices that existed with time. Some of these companies have upgraded their processes to automation using contract management systems and some are still adopting semi-automated processes like using word for contract drafting, email for back and forth communication, and scanning the final contracts after signatures. So the net outcome with these companies is that they have contracts but are in a legacy format and are non-searchable.
Scenario 3 – Accepting third-party paper
There are situations across all organizations where business is done at the terms of the opposite party and hence all agreements are signed as per the other party’s terms. This translates to the fact that after signing the contract there is no visibility on what you have accepted and hence there is a big chance of overlooking some of the important terms that could put your organization at any potential risk. Some of these terms could be auto-renewal clauses without notice or termination for convenience and so on.
Scenario 4 – Laborious Contract Reviews
Consider that your organization is into spare parts manufacturing and in the process, your procurement department works with several hundreds of vendors for purchasing various raw materials involved in manufacturing the spare parts. As you sign up with each new vendor there is a need to get into a contracting process and that will involve manually reviewing each of the contract documents provided by your vendor to see if there are any clauses or terms that are not in the interest of your organization and if you are really accepting any non-standard language. This involves too much manual review work and when there are hundreds of such new contracts coming in regularly then it becomes overwhelming.
Today a lot of this manual labor and time consuming human involved processes are being automated heavily using technologies like Artificial Intelligence, Machine Learning, Natural language processing, Deep learning, and a lot more
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