Today’s competitive market requires data-driven contract analysis and insights to make any business decisions. However, not every manager realizes that contracts are one of the most important sources of data. Around 15% of lost business revenue comes from mishandled contract renewals.
How to avoid contract mishandling and leverage business-critical data from legal documents?
A thorough contract analysis lets you get insights into each legal transaction and its implications for your company.
In this article, let’s talk about how to effectively analyze a contract. Let’s go over its importance, benefits for every business, and how to set up contract analysis using contract management solutions.
Here we go.
What is contract analysis?
Contract analysis is the process of reviewing and evaluating contracts. It gives you the analytics needed to understand contract trends better. This can involve anything from reviewing the contract’s language to studying the contract’s data and history.
Most businesses use contract analysis software to perform regular analysis on their contracts and harness actionable data from the documents. Usually, legal professionals conduct contract analysis. However, it may also provide valuable business insights for non-legal professionals.
So, here are the other roles who can benefit from contract analysis
- Business owners and executives who know that contract analysis is a critical part of running a successful business since it provides important details like obligations and deliverables.
- The chief financial officer (CFO) who needs to understand the financial implications of a contract to develop an accurate budget and forecast for the company.
- The accountant that oversees a contract’s financial obligations and makes sure everything adds up.
- Regulators often need to review contracts to ensure a company complies with laws and regulations.
- Consumers receiving goods or services need to be informed about what they’re entitled to and when they can expect it.
- Property managers who sign leases with tenants on a regular basis.
What are the benefits of contract analysis?
For one, analyzing contracts regularly can help enterprises build strong relationships with their partners. If your partnership went well, then a contract renewal is likely to occur.
Here are more reasons to do contract analysis:
Improve your decision-making
Regularly reviewing your contracts can ensure a clear understanding of your rights and obligations and aid in making informed decisions about any future changes to the contract. You can also evaluate the performance of a particular contract to see if they’re worth repeating.
Help you identify potential risks
An important benefit of contract analysis is that it can help you mitigate risk. Even if you think you understand the contract, there may be areas open to interpretation or provisions that could create problems later on.
Identify opportunities to make future contracts better
Analyzing contracts is reviewing the clauses in existing contracts and understanding whether they’re effective, the challenges in complying with them, and what could be done differently next time.
Ensure you maintain compliance
Regular contract tracking helps you confirm that you’re compliant with an agreement’s terms and the governing law around it.
Develop your negotiation skills
Reviewing contracts regularly can help you to sharpen your negotiation skills. You will be able to identify areas where redlines or concessions were made and get better terms for your business next time.
What’s the difference between contract analysis and contract review?
Yes, there’s a difference between the two contract processes.
Contract analysis is an in-depth examination of a contract that interprets how the contract was used and the implications it has — so yes, contract analysis happens after contract signing. Also, contract analytics usually includes a financial analysis of the contract’s impact on the company.
On the other hand, a contract review is a preliminary check of a contract to ensure that the contract includes all the necessary provisions — deciding whether or not to sign a particular arrangement in the first place.
What is the contract analysis process?
If you’re trying to interpret a contract, it can be helpful to break it down and analyze the different parts. Some key things that contract analysis can measure include:
- terms and conditions
- financial terms
- performance metrics
- compliance requirement
- number of amendments made
Contract analysis systems vary between businesses. But there are some common steps to follow.
- The business will identify the key contracts that are in place. These are typically the contracts that have the most significant financial impact or are critical to the operation of the business.
- The contract analyst will evaluate each contract to understand its terms and conditions. This can involve reviewing financial records, talking to contract managers, and consulting with outside experts if necessary.
- Finally, the analyst will develop a plan for managing contracts going forward. It could mean renegotiating terms, transferring responsibility to another party, or terminating the contract entirely.
How can contract management software help with contract analysis?
Contract analysis can be performed manually or with the help of technology. Let’s start by going through the manual contract analysis process.
First, you’ll need to create a spreadsheet that includes all of the relevant data points from the contract. This might include pricing, terms, and conditions, delivery dates, etc. Once all the data is in one place, you can start analyzing it. This usually involves looking for patterns and trends and comparing different data points to see if there are any discrepancies.
Now, this extraction process can be automated with contract analytics software. The contract analysis software usually uses artificial intelligence to run.
However, there’s a catch — contract analysis software powered by AI isn’t cheap. A relatively cheaper solution is using contract lifecycle management software. So if you created contracts from this type of tool from the get-go, contract analysis is easier (even without AI-powered contract analytics software).
Modern CLM software like Avokaado has features that can give you better visibility into the contract process, so you can analyze and control documents better.
7 useful features of Avokaado that make contract analysis easier
As the name suggests, it’s a library that contains a collection of standard contractual clauses. So in Avokaado, contracts are also searchable based on used clauses too. During analysis, the library helps you analyze the clauses used throughout the contracts so they’re consistent and up to date
However, should you decide to use your existing Word template, you can simply upload it to the platform so you can still automate your document. A machine learning-based algorithm will divide the document into clauses for you, so it’s easy to add/edit new content.
Avokaado can help with contract analysis through document filtering. That’s sorting them based on what stage (Drafts, Approval, Signing, and Done stages) they’re currently in. This lets you quickly and easily narrow down the contracts you need to review — document in the Done status — making the process more efficient.
Avokaado template categories help you stay organized during the contract analysis process. It lets you sort contracts generated from the automated templates in the Avokaado store. While there’s a pre-built list of template categories, you can customize it by adding, editing, or deleting template categories.
Leveraging template categories aren’t the only way to keep your documents organized. Avokaado lets you store all your documents in separate folders (and subfolders). Folders simplify the process of finding files, and managing them is simple, too — with only a few clicks.
Avokaado’s 360° view gives a complete contract overview not only of your own documents but the entire company too. That view also lets you see their current status, who has access, and when they were last updated. So during the analysis of contracts, it’s easy to spot documents you should review first.
By default, Avokaado’s contract management dashboard displays your personal workspace and that also gives you your deal statistics. This shows you the total workflow done plus the average time used. During contract analysis, you’ll quickly see the contract metrics and see if the current workflows are truly efficient.
Reminders & hot contracts
Another part of Avokaado’s workspace scheme is seeing your hot contracts or documents that need your urgent action. The contract management KPI dashboard view is also an effective reminder of what document needs priority and all other account-related notifications.
Performing a regular contract analysis
It’s a fact that contracts are the cornerstone of any business, and so they require regular analysis in their entire lifecycle. Even so, a lot of people just store contracts away after they’re signed — unless there’s a dispute.
Contract analysis is the best course of action. By doing this, you also extract meaningful contract information that helps you make intelligent decisions for your business.
Yet if you want more than analysis but a better overview of your contract process, Avokaado can help.
Our modern CLM features will give you the visibility you need over your contracts and their workflows. Sign up today and see how Avokaado can help streamline your contract management process.