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How do companies avert contract risks and derive optimum value using Contract Analysis?

September 5, 2022 - Team EdgeVerve

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Contracts are a written constitution or a roadmap for conducting business between parties. Poor analysis of contractual terms and missed compliances can result in huge losses for both parties to the contract. Therefore, contract analysis should be continuous to avert any possible risk and drive revenue for both parties.

What is contract analysis, and why does it matter?

When two entities enter a contract, they are bound by its terms and conditions. A contract defines what is to be delivered, how, and when. Contract Analysis allows the parties to keep track of the information within the agreement, flags what’s already been achieved and what is yet to be delivered, and ensures the expected quality and compliance standards are aptly met. It continues all through the contract lifecycle.

Contract risk analysis is essential because it can add extra value to your business’s bottom line. The chances of errors or missed terms are high when agreements are drafted and evaluated manually. After all, a business contract is not an A4 sheet document; it is a thin booklet of papers filled with contractual terms, figures, and dos and don’ts. Inadequate evaluation of business agreements during the negotiation process can be cited as one of the major causes of such errors. Any missed detail or error will only sap profits from your business.

A few such common errors could be:

All the errors mentioned above and many more are visible only after multiple evaluations of contractual terms. However, multiple analyses might not be convenient due to time constraints. But, manually o analyzing agreements only delays the process and increases the chances of more errors being left behind unresolved.

Contracts are just like business documents. They are a goldmine of data presenting endless opportunities if extracted intelligently. Just like document processing, legal agreements need an intelligent solution. AI-powered contract analysis can very well fit the profile.

How do companies mitigate risk with contract analysis and drive revenue?

Studies show that an inadequate risk management strategy during the contracting process can result in a loss of value of 9% or more. That value can be in terms of revenue or business opportunities. Unfortunately, such risks are often overlooked by companies during the contracting process.

AI-powered contract review and analysis takes the labor, time, and error-intensive factors out of the process and accommodates adequate evaluation of terms and clauses to avert plausible risks.

Solutions like XtractEdge Contract Analysis leverage vision-based, semantics-based, and language-sequence-based ML techniques to review contractual terms and identify hidden risks. Such risks can be in the shape of the following:

Often, such nuances exist in granular details that are highly likely to get missed or overlooked when reviewing contracts manually. Poor visibility of contractual terms makes it even more difficult for legal advisors to identify key problem areas and address them. A manual approach could result in more losses and further delays. Hence, AI contracts analysis is the best solution for organizations.

The latter breaks down contractual clauses and provisions and identifies the true intent behind each term and abstract entity or entities mentioned in the contract. This approach enables ease of reading and interpretation.

A smart contract analysis usually does the following tasks while reviewing contracts:

AI contract analysis empowered by added capabilities improves contract visibility and proactively accommodates continuous risk identification and prevention. At the same time, it upholds the confidentiality of partner details and contractual terms. This effortless and errorless approach can quickly drive revenue for partners and safeguard them from any risk arising from misrepresented contracts.

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