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Revenue Accounting Contract Review: Why OCR and CLM Are Not Enough

Manually reviewing customer contracts for revenue accounting impact is time consuming and painful. Each contract requires accountants to spend hours creating and populating new contract review checklists with metadata, dates, fees and non-standard terms—hours that could be spent on process innovation. And while there are products and solutions like OCR and CLM that can automate document and contract review processes, sometimes, those products alone aren’t enough for the average revenue accountant. Let’s take a look at how Klarity fixes that problem.

May 6, 2022

Let’s start at the beginning

So what exactly is OCR? Optical character recognition (OCR) automates the process of converting unstructured formats into machine-readable, searchable text. Originally, OCR technology was created for the blind as a reading machine in the 1970s by the company Kurzweil Computer Products, Inc. The machine would scan and read the documents out loud. The technology has since evolved into a useful tool for any organization, especially in a contract management software system. Businesses can rapidly transfer documents into their digital systems, and data analysis tools can process the relevant data.

The problem with OCR is that it provides outstanding results only in certain situations. In most practical applications, it does not compete with the accuracy of humans. Modern OCR applications have difficulty processing documents that are not crisp and clear or use unusual fonts.

At first glance, contract lifecycle management (CLM) appears to address some of OCR’s issues, and many solutions include OCR. CLM automates and streamlines contract processes during key stages. These stages include initiation, authoring, process and workflow, negotiation and approval, execution, ongoing management and compliance, and contract renewal. By creating a common language, core templates, unified terms, and repeatable, consistent conditions, buyers and suppliers save time and reduce errors. Most contract management software is designed to provide greater visibility into corporate spend, create greater efficiencies in the contract process, and lower administrative costs.

How do they work together?

Cutting-edge contract management software that includes both OCR and CLM can automate contract request management, making for an intuitive, accurate, simple, and efficient process. Teams can easily establish a request intake form that virtually ensures all relevant request information is captured in a centralized fashion.

Organizations can also set up a request wizard or a dynamic questionnaire that helps requestors determine what type of request they need to submit. This guidance comes in the form of pre-configured and dynamic questions. Once a questionnaire is submitted, the system assigns users to the relevant request page based on their answers.

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So why aren’t these two enough?

The current issue with OCR is that it can only scan and duplicate what's in a paper document, fax, etc., because OCR text only works efficiently with printed text, not handwritten text. Unfortunately, the quality of the image can be lost during the OCR process, since the end result depends on the quality of the first image. And because all the documents have to be checked over carefully, then manually corrected, OCR can end up wasting time instead of saving it.

The problem with CLM is that revenue accountants don't need everything it does. Two of the top 10 of business software companies in the world include CLM solutions in their portfolios. When companies are that big, they're going to make software that automates as much as possible. So, revenue accountants will be disappointed if they try to use CLM software because it offers too many options for what they want to do, and can end up wasting their time once more. Or if what’s offered is a plug-in and they don’t have the software giant’s system in place, it’s of no use to them.

Klarity also eliminates the need to review every contract manually.

Aditya Thiruvengadam

Senior Machine Learning Engineer at Klarity

Klarity has the answer

Recognizing that neither OCR or CLM was exactly right for the kind of customer contract review that revenue accountants do, Klarity developed one specifically for them that has AI built directly into it so that it's more than just automation. It’s a combination of AI and automation that is designed to help revenue accountants find what's important and understand what they need to do faster.

With Klarity, you can automate the worst and most error-prone aspects of the document review workflow, while the tasks your accountants still have on their plates represent the high value work they were actually trained to do. Klarity automatically identifies the contract needed and pulls the PDFs in. Then it scans and reads the contract for you, and highlights on the document itself whatever filter you have it combing through. It can then populate that checklist that’s in the Google or Excel spreadsheet. Using Klarity, the revenue accountant will see the checklist side by side with the contract, helping to ease everything concisely into the workflow.

Additionally, Klarity also eliminates the need to review every contract manually. The revenue accountant is able to do all the reporting inside of Klarity, but doesn’t have to go in and look at the contract at all. This enables the revenue accountants to only have to focus on 15% of the contracts that Klarity has deemed to be potentially impactful, instead of the entire contract. The process flows smoothly, and allows the knowledge workers to tackle more meaningful projects.

Want to find out more about the contact review system designed for revenue accountants, by revenue accountants? Visit our Revenue Accountant page or for more details about how Klarity works, read How Klarity Works: Automate Workflows, available on our blog.

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