Automated contract data extraction: A complete guide
Contracts are a gold mine of data, but manually digging for it is a nightmare. It's slow and error-prone and keeps your team from more important work. That's where automated contract data extraction shines.
Automated contract data extraction quickly and accurately grabs critical data from your contracts using AI and OCR. It saves you time and resources, letting you focus on what matters. So, whether you're a legal professional looking to minimize risk, a procurement specialist aiming to optimize spend, or a contract manager striving to improve performance, automation is the way to go.
In this article, we'll explore what is automated contract data extraction, how it works, and what to look for in a solution. You'll see how platforms like Nanonets can help businesses across industries take control of their contract data.
What is automated contract data extraction?
Automated contract data extraction software uses AI, OCR, and workflow automation to quickly and accurately pull key details from contracts and route that data into your systems for analysis and tracking. Rather than manually reviewing contracts, the software scans documents to identify and extract critical data like end dates and payment terms. This structures contract details into an organized digital format within seconds.
Lawyers and managers can search, analyze, and report on this data effortlesslyinstead of digging through paperwork. Automated extraction saves time, reduces data entry, and transforms contracts from passive documents into strategic tools that provide insights to identify revenue risks, find savings, and empower better decisions.
How automated contract data extraction works
The process begins by ingesting contracts into the system and ends with the software automatically extracting key data points into structured fields and triggering downstream workflows.
The essential data points that can be extracted from contracts include end dates, party names, pricing terms, liability limits, renewal terms, service level agreements, and more.
Here's a step-by-step look at how it works:
1. Ingest contracts
The process begins by ingesting paper or digital contracts into the system. Solutions like Nanonets can scan and digitize printed contracts using OCR technology. Users simply upload documents directly or automate importing from cloud storage or email for existing digital agreements.
2. Extract data using AI
The software analyzes documents to identify relevant information such as parties, dates, terms, and more and converts them into searchable digital text. As the system processes more agreements, the AI continuously improves, learning to recognize critical data points better.
3. Structure data
The extracted information is structured into labels and categories, ensuring it's accurate and properly formatted. Data like names, addresses, and dates are validated and standardized. Unstructured free text is tagged and classified based on meaning.
4. Validate data and route for approval
The software automatically validates the extracted data using predefined rules to catch any errors or inconsistencies. For example, it can flag documents for human review where the values are beyond expected ranges or dates that are in the past.
Based on business rules, the data is then routed to the appropriate teams for approval. For example, renewals due within 60 days can automatically notify procurement to review pricing. Agreements with changes to terms over a threshold value may be routed to legal for additional scrutiny before approval.
4. Export data
Once data has been successfully extracted, structured, validated, and approved, it can be exported as CSV or JSON files for use across your systems. Structured contract metadata can integrate directly with databases, analytics tools, and existing workflows.
5. Trigger workflows
By connecting extracted data to workflows, contract management processes can be automated. Data can trigger notifications of renewals, deadlines, approvals, and more. Workflows route contracts, tasks, and data to the right people when needed.
While the exact process may vary based on your specific use case and solution, the core principles remain the same. Automated data extraction takes the manual effort out of making sense of contracts.
This transforms disconnected documents into structured data that provides visibility into risks, obligations, and opportunities to drive savings and revenue. Rather than reacting to contracts after signing, businesses can proactively manage agreements as strategic tools.
How does automated contract data extraction address common workflow challenges?
Do you want your legal team spending their time on high-value work or manual data entry? Would you rather have procurement negotiate better deals or chase down paperwork? Is your contract management team focused on strategic initiatives or busy searching for files?
Do you often deal with late payment penalties or missed opportunities due to a lack of visibility into contract data? If so, you're not alone. Many organizations need help with these challenges, leading to wasted time, resources, and revenue.
Automated contract data extraction addresses these issues by digitizing and structuring critical information from agreements.
Challenge 1: Manual data entry is time-consuming and error-prone
Manually reviewing contracts to extract key data points is tedious and error-prone. It can take hours to locate and accurately capture critical details like parties, dates, terms, and values from a single contract. Multiply that effort across hundreds or thousands of agreements, and the burden becomes immense.
Automated data extraction eliminates this manual work. The software quickly scans contracts, pulls the critical data, and populates it into the correct fields. This saves significant time while ensuring data is captured accurately and completely.
Challenge 2: Scattered contract data makes it difficult to track obligations and opportunities
When contract data is locked away in individual documents scattered across various storage locations, keeping track of important details can be challenging. Renewals are missed, compliance issues go unnoticed, and renegotiation opportunities slip through the cracks.
Automated data extraction makes key contract details centralized, organized, and easily searchable. Teams can instantly access the necessary information and set up alerts for important dates and events. This visibility enables more proactive contract management.
Challenge 3: Inability to integrate contract data with other systems
Contracts hold a wealth of essential business data. However, it's not actionable if that data is trapped in unstructured documents. Manually transferring contract data into other systems is time-consuming and introduces risks of errors.
Automated data extraction captures contract data and structures it in a usable format. This enables contract data to seamlessly integrate with other business tools and workflows, such as CRMs, ERPs, and procurement systems. Contract data becomes connected to business processes, driving efficiency and informed decision-making.
Challenge 4: Difficulty handling large volumes of contracts
As businesses grow, so does the number of contracts they must manage. Manual contract management processes quickly become overwhelmed by the increasing volume. This leads to delays, inconsistencies, and increased risk.
Automated data extraction enables businesses to scale contract management efficiently. The software can process vast numbers of contracts quickly and consistently without increasing headcount. This empowers teams across the organization, from Legal to Procurement to Sales, to stay on top of their contract responsibilities and make data-driven decisions.
Challenge 5: Ensuring data accuracy and consistency
Manually extracting data from contracts is prone to human error. Small mistakes, like a mistyped date or a skipped clause, can have significant consequences. Inconsistent data entry across team members also makes maintaining a single source of truth difficult.
Automated data extraction ensures data accuracy and consistency. The software applies the same rules and validation checks to every contract, eliminating the risk of human error. Advanced solutions like Nanonets allow users to train custom AI models to capture company-specific clauses and data points accurately, further ensuring precision and reliability.
Challenge 6: Lengthy contract cycles
The contract lifecycle involves many time-consuming steps, from drafting to negotiation to execution. Manually transferring data between systems, sending documents for review, and chasing approvals all extend the contract cycle. These delays slow time to revenue and can frustrate stakeholders.
Automation accelerates contract cycles by eliminating data entry and document hand-offs. Extracted contract data can automatically be routed for approval based on rules like contract value thresholds. Alerts can notify relevant parties when action is required. Data can flow directly into systems like CRM to trigger the next steps after execution.
Challenge 7: Reactive contract management
Many organizations take a reactive approach to managing contracts, only referring to them when issues arise. This leads to missed milestones, forgotten renewals, and lost revenue opportunities. Contract managers are left scrambling to resolve urgent problems at the last minute without proactive notifications.
Automated data extraction enables organizations to take a proactive approach to contract management. By capturing key dates and terms upfront, systems can generate automatic alerts for upcoming renewals, expirations, and other important events. This empowers teams to get ahead of contract issues before they become problems.
Challenge 8: Lack of contract performance insights
Contracts contain valuable data that can provide insights into vendor performance, risk exposure, revenue trends, and more. However, it's difficult to aggregate and analyze when contract data remains trapped in documents. This lack of visibility prevents organizations from optimizing contract performance.
Automation unlocks contract data for analysis by extracting and structuring key details. Metadata can be exported into analytics tools to track KPIs, identify bottlenecks, and surface improvement opportunities. With contract data at their fingertips, organizations can make data-driven decisions to maximize contract value.
Automated contract data extraction is critical to accelerating contract velocity and maximizing performance. It transforms legal, procurement, and contract management processes by digitizing and integrating contract data directly into workflows. It eliminates the tedious busywork that keeps teams from focusing on strategic priorities.
How can Nanonets help transform your contract data extraction workflows?
Looking for an effective solution to address these challenges? Nanonets' AI-based contract data extraction is the answer.
Nanonets is a powerful, no-code platform that enables businesses to automate their contract data extraction processes. With Nanonets, you can quickly train custom AI models to accurately capture critical data points from your contracts, regardless of format or complexity. The platform seamlessly integrates with your existing systems, allowing you to streamline workflows and make data-driven decisions.
Let's explore how Nanonets can help:
Effortless contract import: Automatically import contracts from email, Google Drive, Dropbox, or contract management systems. You can even set up triggers to import the contract documents as soon as they arrive. You can handle various formats, such as scanned PDFs, digital documents, and images.
Advanced AI models: Nanonets lets you train custom AI models to extract data fields unique to your contracts accurately. This means the platform adapts to your contract templates and clauses, not the other way around. You can also use pre-trained models to identify and capture key data points accurately.
Human-in-the-loop validation: Extracted data is presented to legal/contract teams for review within Nanonets. Users can quickly correct discrepancies, helping the AI learn and improve. It ensures a high level of data accuracy and trust.
Scalable processing: As your contract volume grows, Nanonets can keep pace. The platform can handle thousands of contracts without breaking a sweat, ensuring you never fall behind on data extraction.
Complex contract handling: With advanced AI, Nanonets can extract data from even the most complicated contracts, including scanned PDFs, images, and contracts with multiple layouts or formats. It adapts to your evolving contract needs.
Data enrichment: Enrich extracted data with information from CRM, ERP, and other systems. This lets you gain a 360-degree view of your contracts and make informed decisions. Nanonets also allow you to validate extracted data against external sources for added accuracy.
Seamless workflow integration: Nanonets fits right into your existing contract workflows. Extracted data can be automatically exported to your contract lifecycle management system, CRM, ERP, or any other database, eliminating manual data entry. It helps break down data silos and enable contract intelligence to flow freely.
Automated risk flagging: Nanonets can automatically flag review contracts based on predefined rules, such as missing clauses or non-standard terms. This helps ensure compliance and mitigate potential risks.
Enhanced contract intelligence: With Nanonets, you can unlock valuable insights from your contract data. Quickly analyze contract metrics, identify performance trends, and make data-driven decisions to optimize contract outcomes.
Robust data security: Nanonets employs industry-leading security measures, including advanced encryption and secure data handling practices, to keep sensitive contract data safe and compliant. Granular access controls ensure sensitive contract information is only accessible to authorized users.
Final thoughts
Automated contract data extraction is no longer a nice-to-have—it's a must-have for businesses looking to stay competitive. By harnessing the power of AI and OCR, you can unlock the true potential of your contracts, turning them from static documents into dynamic sources of insights.
Whether you're a legal professional, procurement specialist, or executive, embracing automation can help you work smarter, not harder. With solutions like Nanonets, you can take control of your contract data, streamline processes, and make informed decisions that drive your business forward.