In today’s fast-paced business environment, managing contracts is a crucial aspect of organizational success. Contract management software can help companies streamline their processes, reduce the risk of errors, and improve efficiency. In this blog, we will focus on the importance of contract digitization storage and retrieval/search and the issues that arise with non-digital storage.
Many businesses still store their contracts in physical form, which can lead to several problems. One of the most significant issues with physical storage is the time and effort required to search and retrieve contracts. Beyond physical storage, companies use many other tools like Microsoft excel, shared drives, email, and basic contract storage tools to manage their contracts. However, these systems have limitations when it comes to contract management. For example, Shared folders search functionality is limited, making it difficult to find contracts quickly. Moreover, Shared folders or shared drives do not offer advanced features such as AI-powered contract extraction, which can significantly improve contract management efficiency and accuracy.
A study conducted by the International Association for Contract and Commercial Management (IACCM) found that it takes an average of 15 minutes to locate a contract, and in some cases, it can take up to several hours. This time-consuming process can be a drain on resources and can also result in lost or misplaced contracts.
Contract lifecycle management software is a better alternative for businesses that want to store their contracts digitally and manage them efficiently. With contract management software, businesses can store their contracts in a secure, centralized location, making it easy to search and retrieve contracts quickly. In addition, contract management software can offer AI-powered features such as optical character recognition (OCR) that can extract meta-data from contracts, reducing the risk of errors and saving time.
Given the inherent benefits of truly digitized contracts, efficiency and reduced risk of legal and financial consequences, the contract management software market is expected to at a compound annual growth rate (CAGR) of 13.5% over the next 5 years according to a report by Grand View Research.
A typical contract digitization process involves 4 core steps:
Contract Scanning:
- The first step in digitizing a contract is to scan it into a digital format. This involves using a scanner to create an electronic copy of the physical contract. There are two ways to do this: either by scanning a physical document, or by creating a digital document from scratch using a word processor.
OCR:
- Once the contract has been scanned, the next step is to extract the text from the digital image. Optical Character Recognition (OCR) software can be used to recognize and extract text from images. OCR software can automatically identify the text in the scanned image and convert it into machine-readable text.
Meta-Data Extraction:
- The next step is to extract meta-data from the contract. This includes information such as the contract type, parties involved, contract dates, and other important information. AI-powered CLM solutions can use natural language processing (NLP) algorithms to extract this information from the text.
Contract digitization Storage:
- Once the contract has been finalized, or an old contract has been digitized, it needs to be stored in a secure, centralized location. A CLM solution can provide a centralized repository for storing all contracts, making it easy to search, retrieve, and manage contracts over their entire lifecycle.
What are the critical capabilities of a modern CLM software that you should evaluate
While most vendors claim to offer basic scanning, extraction, storage and search capabilities, when you evaluate a CLM solution, you should evaluate the following at the bare minimum. You may treat these as pointers for your CLM related RFP process.
Bulk upload:
- Can the solution bulk upload at least 250 pre-existing contracts in multiple formats (pdf, word, paper.
- How long does the CLM software solution take to complete the above task
- Does it report a % confidence level or accuracy of the completed task at individual contract level and as a whole?
- Does it provide concurrent manual audit of the uploaded contracts to spot & fix the errors.
Third-party contracts:
- Ingestion of 3rdparty contracts and which fields are available
Metadata extraction:
- Including but not limited to obligations, service level, pricing tables, tabular data, and information privacy and security commitments
Contract digitization storage:
- How are contracts grouped hierarchically by project, portfolio, and entity level
- Is this manual or does the software have AI capabilities to group contracts
Contract analysis and reporting
- Does the CLM product support contract analysis, specifically: contract aggregation and normalization, Contract tagging and classification including any AI recommendations
Contract search capabilities
- Including highlighting fuzzy match, deduplication capabilities, image search, and simultaneous searches
Reporting & Dashboards:
Does the product provide native dashboards/reports to depict contract data by product, business function, and geography.
Read our latest blog- Prioritize CLM Digitalization for a Smooth Ride
Digitized contract storage, why are they so critical, and how to build the business case?
Lets consider five common scenarios where contracts stored digitally in a CLM solution would prove very handy when quick search or analysis is required, which would not be possible if contracts were stored in shared drives or folders:
Procurement Contracts:
- In a procurement department, contracts with vendors and suppliers are critical. CLM software allows procurement professionals to easily search for specific contract details, such as pricing, delivery timelines, and payment terms. They can also analyze contract data to identify trends and insights, such as which suppliers are consistently meeting their obligations and which are not.
- One such clause is the auto-renewal clause. IACC survey suggests 80% of services contracts have this clause imposed by vendors. Quite often a contract gets renewed inadvertently as the procurement organization or the business end user owner of the contract is not alerted to terminate the contract within the stipulated time. This leads to disputes and there are many prominent cases surrounding this. For example, in 2018, the US Federal Trade Commission (FTC) filed a lawsuit against a major telecommunications company, alleging that it had engaged in deceptive and unfair practices by using automatic renewal clauses to charge customers for unwanted services and equipment.Such examples highlight the potential risks and costs associated with contracts which are not digitized and stored to help business users or contract administrators get alerted on various contract terms. This can result in unwanted costs and obligations, while disputes can lead to legal fees, reputational damage, and lost business opportunities.
Sales Contracts:
- In a sales department, contracts with customers are crucial for managing relationships and tracking revenue. CLM software allows sales professionals to easily search for specific contract details, such as pricing, payment terms, and product or service specifications. They can also analyze contract data to identify trends and insights, such as which products or services are selling well and which are not.
Legal Contracts:
- In a legal department, contracts are at the core of the work done by attorneys and paralegals. CLM software allows legal professionals to easily search for specific contract details, such as legal terms and obligations, and to compare and analyze contracts side by side. They can also track deadlines and obligations to ensure compliance with contractual obligations.
HR Contracts:
- In an HR department, contracts with employees are crucial for managing employment relationships and tracking employee performance. CLM software allows HR professionals to easily search for specific contract details, such as compensation, benefits, and performance metrics. They can also track contract renewal dates and deadlines to ensure compliance with employment laws and regulations.
IT Contracts:
- In an IT department, contracts with vendors and suppliers are critical for managing technology systems and equipment. CLM software allows IT professionals to easily search for specific contract details, such as pricing, service level agreements, and support requirements. They can also analyze contract data to identify trends and insights, such as which vendors are providing the best service and which are not.
In conclusion, digital contract storage is an essential aspect of contract management in today’s business environment. Contract management software can help businesses streamline their processes, reduce the risk of errors, and improve efficiency. Companies that switch from physical contract digitization storage, or scanned/ pdf storage, to contract management software can save time, reduce the risk of lost or misplaced contracts, and improve their bottom line. With the market for contract management software growing rapidly, it is clear that businesses across industries are recognizing the value of digital contract storage and retrieval/search.
Book a demo today to see how contract management software can benefit your business.
