Contracts are the backbone of every business relationship, defining the terms and expectations that businesses have with their suppliers, partners, and customers. However, when poorly managed, contracts can pose substantial risks to a company’s financial performance. Research from World Commerce & Contracting reveals that ineffective contract management leads to an estimated 9% loss of a contract’s overall value – an issue that is both costly and avoidable for companies with thousands of commercial agreements.
Leadership challenges are serving to compound this issue. A recent study reveals that 90% of CEOs and 80% of CFOs struggle with ineffective contract negotiations, leaving millions of dollars on the table that could have bolstered their bottom line.
These figures point to a reactive and siloed approach to contract management, one that often results in revenue leakage, inefficiencies, and mounting compliance risks. The need for transformation is clear. AI in contracting provides the solution that turns static agreements into dynamic tools that not only control costs, but also capture lost revenue, and ensure compliance.
Addressing Contracting Gaps to Unlock Value
Economic pressures have exposed operational gaps that lie at the heart of contract mismanagement. According to research, 70% of CFOs report revenue losses from overlooked inflation clauses, while 30% of business leaders cite missed auto-renewals as a major source of financial loss.
While these oversights may seem minor, their effect can erode profitability over time and expose organisations to reputational and compliance risks.
AI offers a solution by identifying these problematic areas and offering actionable insights. For example, AI-powered solutions can identify and track important clauses like inflation adjustments and renewals. By monitoring external factors, AI can also deliver key insights precisely when decision-makers need to make calls. Automating these processes not only reduces financial losses but also frees up teams to focus on more high-value, strategic priorities.
Adapting to Modern Business Challenges
Organisations should now no longer treat contracts as static documents. Instead, they should be seen as resources of enterprise data that equip business leaders to respond in changing conditions and drive strategic outcomes.
Integrating contract data into core business processes and applying AI enables organisations to maximise the commercial impact of their business relationships. Centralising contract data also improves visibility, helping teams to better identify risks, such as noncompliance, and potential opportunities, such as unrealized cost savings.
In today’s rapidly evolving technology landscape, AI-powered contract intelligence platforms must be robust yet flexible enough to integrate with the latest AI advancements. For instance, contracting complexities and the unique demands of each business mean that a multi-model approach is necessary to harness the full power of AI’s potential. Recognizing this, it’s important for businesses adopting AI in contracting to explore a platform that is both adaptable and open to seamlessly incorporate best-in-class AI models and agents that work together to drive meaningful outcomes.
Driving Organisational Change
However, AI adoption for contract management is not simply about implementing new technology with the best AI models. It’s about driving organisational change. This includes evolving processes, fostering a culture of collaboration, and providing teams with the training needed to effectively use AI tools. For instance, although traditionally slow to adopt AI solutions, legal teams are increasingly embracing this technology. Recent findings suggest that 85% of legal teams will utilise generative AI by 2026 as legal professionals seek to ensure compliance, mitigate risk, and optimise resources, while 56 percent of legal operations say generative AI tools are already part of their tech stack.
In the realm of finance, CEOs view this business function as the number one area of the business that could realize immediate cost savings through the effective use of AI.
This transformational shift in AI adoption empowers critical functions like legal and finance to not only evolve from outdated practices but also become centres of innovation that influence and shape the strategy of their enterprise.
The AI Advantage
The benefits of AI in contract management are already being realized across industries. Companies leveraging AI have recovered millions in revenue by addressing overlooked inflation adjustments and other drains on cash flow like unused supplier discounts and outstanding customer payments – all of which are governed in commercial agreements.
For example, The Financial Times reports how AI adoption has helped companies lower operational costs. Similarly, findings from Procurement Tactics reveal that organisations using AI have shortened negotiation cycles by up to 50%, demonstrating the tangible benefits of this technology.
The Way Forward: Embracing AI in Contracting
With billions of dollars flowing through contracts each year, effective contract management is no longer optional – it’s imperative. AI-powered contracting is a necessity for businesses looking to unlock tangible value that directly impacts their bottom line.
By addressing inefficiencies and transforming contracts into adaptive, data-driven assets, AI enables organizations to negotiate better deals, deliver cost savings, and recover lost revenue.
The path forward is clear for 2025: Embrace AI in contract management to overcome challenges, improve your financial health, and position your business for long-term success. Now is the time to transform your contracts into strategic assets that accelerate informed decision making and propel your business forward.
- Data & AI
