Introduction
With so many AI-powered automation tools available today, any team or organization that does not implement these solutions is at risk of being left behind.
AI is being used in almost every aspect of business: from mapping internal inefficiencies to supporting employees in the field.
One of the most powerful ways that AI can be used is automating contract data extraction. We’ll explore the significance and impact of this capability, including specific use cases, practical tips, and more.
Significance Of Contract Data Extraction
Contract data extraction is highly significant for a number of key reasons. These include:
Improving efficiency: With automated processes, manual work is a thing of the past. In the case of extracting data from contracts, AI can do this better and quicker than any human, including understanding context and nuances. Processes that used to take days can now take seconds.
Boosting accuracy: A “minor” mistake made when manually extracting data from a contract can spiral into a major embarrassment as that data works its way through your financial system – from calculations to journal entries and financial statements. Tracing and fixing this error can become a nightmare, and all of this can be avoided if using sophisticated contract data extraction automation software.
Enabling visibility: Automated data extraction can consolidate data, present it in the most relevant way, ensure real-time visibility, and enable value-adding retrieval and analysis.
Enhancing decision making: With this visibility, better decisions can be made. Stakeholders now have access to updated high-level information, they can spot trends or areas of opportunity, and they also have the ability to drill down into the details.
Ultimately, the benefits of automated contract data extraction can provide a sustainable strategic advantage to organizations, if leveraged correctly.
Broad Applications
There are numerous applications for automated contract data extraction. Some of these include:
Accounting workflows
For accounting, automated data extraction can streamline document processing and reconciliation by automatically extracting financial terms and conditions; it can
improve budgeting and forecasting by providing precise data on contractual commitments and obligations, and it is able to enhance audit readiness by ensuring all contractual data is accurately captured and readily available.
There are also certain highly topical areas of accounting where automated data extraction is absolutely critical:
Revenue Recognition: Automated extraction of contract data can be used to:
- Automatically identify and classify revenue from contracts based on predefined criteria, ensuring adherence to accounting standards such as ASC 606 or IFRS 15.
- Enhance the accuracy of revenue forecasts by providing detailed insights into future cash flows from contracts.
- Recognize revenue at appropriate times, improving the reliability and integrity of financial statements, while providing management visibility into revenue data.
Lease Accounting: In the context of lease accounting, automated data extraction offers several advantages:
- Facilitates the extraction and classification of lease and non-lease components from contracts, critical for compliance with standards like ASC 842 or IFRS 16.
- Automates the calculation of lease liabilities and right-of-use assets, streamlining the accounting process and ensuring accuracy.
- Can pick up modifications to leases and suggest the appropriate accounting treatment.
Audit: Automated contract data extraction plays a crucial role in auditing by:
- Providing auditors with easy access to relevant contract details, speeding up the audit process.
- Ensuring the consistency and completeness of data extracted from contracts – vital for accurate and reliable audits.
- Supporting risk assessment processes by identifying non-compliance and anomalies in contract management and financial reporting.
Legal and compliance
From a legal perspective, AI-powered contract data extraction can automate compliance checks by identifying and extracting relevant clauses and obligations, and comparing these to actual data.
It also aids in risk management by highlighting terms that may expose the organization to potential legal issues, while enhancing compliance by minimizing errors and maximizing accuracy.
Finance and operations
Automated extraction of contract data can optimize financial planning by extracting and analyzing data on revenue, costs, and liabilities from contracts. Moreover, it can enhance operational efficiency by identifying and enforcing favorable terms and conditions, and improve vendor and supplier management through detailed analysis of contract terms.
Other use cases
Automated data extraction from contracts can cover almost any aspect of business.
From HR – for example, by streamlining employee onboarding by extracting and managing employment terms, benefits, and obligations – to customer relationship management by improving customer service and retention by extracting key details from service contracts and SLAs to ensure commitments are met.
Gaining A Competitive Advantage Through Automated Solutions
New research from Gartner shows that 18% of accountants make financial errors at least daily, 33% make at least a few errors a week, and over half (59%) make multiple errors every month.
While these stats are eye-opening, the answer – at least from an accountant’s perspective – is clear. According to the same survey, companies that push digitization and drive acceptance internally experience a 75% reduction in accounting errors.
We’ve already seen the benefits of implementing technology, specifically automated contract data extraction. These range from cost reductions to improvements in accuracy, efficiency, and strategic decision-making capabilities.
But how do you leverage this technology to gain these advantages?
The key is to identify a technology partner that already offers a solution for your industry. Look for a provider that has a strong track record, is a leader when it comes to technology, understands your industry, and has the necessary certifications to ensure your sensitive data will be handled correctly (for example SOC 2).
Once you have identified such a provider, we suggest working with them to chart your strategy when it comes to leveraging this technology. Specifically, this should include ways to amplify your advantages, guard your position against competitors, and successfully grow your business.
How Trullion Can Help
Trullion is a leader when it comes to AI-powered automated contract data extraction for finance and accounting teams. The Trullion solution enables you to ingest contract data from almost any source (including Excel documents and PDFs) using advanced AI.
Its highly accurate proprietary OCR (Optical Character Recognition) technology extracts key data from source documents, including names, dates, payments, terms and more.
It’s used worldwide by accounting and finance teams, audit firms and consulting companies to immediately add value, as well as provide a decisive, sustainable long-term advantage.
To learn more about automated contract data extraction, or to see how Trullion can benefit your team, connect with a Trullion product expert today.
