AI has earned its place in agency workflows. It’s fast, adaptable, and remarkably good at handling tasks that used to consume hours of human time. When agencies use AI well, it becomes a competitive advantage — not a shortcut.
Problems arise when AI is treated as a substitute for specialized expertise rather than a tool that supports it. Contract drafting falls squarely into that category. AI can generate legal language quickly, but it can’t decide what risks your agency should accept, what protections matter most, or how industry-specific issues should be handled. Those decisions require legal judgment, not just good prompting.
AI Doesn’t Know What You Don’t Know
Most agency owners start with a prompt like, “Write a Master Services Agreement for a creative agency.” AI loves this. It will confidently produce a multipage document with headings, paragraphs, and the things you typically expect to see in an agreement. But because the prompt is general, the result is general. And a general contract cannot protect a specialized business.
Generic AI prompts like this don’t reflect your business model or your risk tolerance. And as a result, AI output won’t reflect how your agency structures approvals, how your agency stages deliverables, or what risks your agency is willing to accept.
To illustrate the problem, here’s a snippet similar to what AI often produces:
“Client shall pay Agency for services performed within 30 days of receiving the invoice.”
At first glance, this sounds reasonable. But think about what’s missing. The draft assumes payment is due in 30 days, what about an advance deposit? Why default to client-favorable 30-day payment terms. What if you need to collect in advance of each phase. What about advance production expenses? It’s a sentence that could apply to any business in any industry — which is exactly the problem.
Without specialized instruction, AI will always give you an unsophisticated average.
The Danger of “Looks Good to Me” AI Output
Let’s look at a real example. I asked an agency how they would prompt AI to generate an invoicing and payment clause for a client service agreement. Here is that prompt and response:
I operate a creative agency. I do web design and web development work. Prepare an invoicing and payment clause that’s appropriate for my services agreement.
Invoicing and Payment
Agency will invoice Client in accordance with the fee structure and schedule set forth in the applicable Statement of Work. Unless otherwise stated in writing, invoices are issued monthly in arrears for time-and-materials work, or in advance for fixed-fee milestones, retainers, or deposits.
All invoices are due and payable within fifteen (15) days of the invoice date, without setoff or deduction. Client is responsible for reviewing invoices promptly and must notify Agency in writing of any good-faith dispute within five (5) days of receipt, identifying the specific line items in dispute and the basis for the objection. Any undisputed portion of an invoice must be paid when due, notwithstanding the existence of a dispute.
Past-due amounts may, at Agency’s option, accrue interest at the rate of one and one-half percent (1.5%) per month (or the maximum rate permitted by law, if less), calculated from the due date until paid. Client will be responsible for all reasonable costs of collection incurred by Agency in connection with overdue amounts, including attorneys’ fees, court costs, and collection agency fees, to the extent permitted by law.
Agency reserves the right, upon written notice, to suspend work if any invoice remains unpaid more than ten (10) days after its due date. Suspension of work will not be deemed a breach of this Agreement and will result in corresponding extensions to project schedules and deadlines. Agency will have no obligation to deliver work product, grant licenses, or transfer ownership of deliverables until all amounts due have been paid in full.
Unless expressly stated otherwise in the Statement of Work, all fees are exclusive of taxes, duties, or similar governmental charges, which will be billed to and paid by Client.
Looks pretty typical of what you might expect. Even looks like a lawyer wrote it (e.g., “ten (10) days”). But there are so many problems. Below is how we would write a clause covering the same issues as reflected in the AI generated language:
Invoicing and Payment
Agency will invoice, and Client will pay, as described in the applicable Statement of Work. Unless otherwise provided in the Statement of Work, Client shall pay invoices within 15 days of receipt. If an invoice is more than 30 days overdue, Agency may charge interest on past due invoices at 21% per year from the original invoice date (or the highest rate permitted by applicable law, if lower).
If Client fails to (i) make any payment when due, or (ii) timely provide any information, materials, access, approvals or feedback reasonably requested by Agency (and that failure causes Agency to incur additional costs), Agency may stop work until Client cures the failure. Stopping work does not limit Agency’s right to terminate. Restarting work is subject to Agency’s availability when the failure is cured. As a condition to restarting work, Agency may require Client to sign an amended Statement of Work adjusting fees and schedule to compensate for the stoppage.
Client shall pay any sales, use, excise, or value-added taxes imposed with respect to the work provided in the Statement of Work, even if assessed after delivery.
So how do these clauses compare? Most obviously, the lawyer-drafted clause is more than 37% shorter (177 words vs 283 words). Because AI mimics typical legal drafting, AI is notoriously long-winded, so the edit is much more tightly-written. Besides efficiency, consider the other improvements that the AI-drafted clause missed:
- The fee and payment clause defers to the SOW, allowing customizations appropriate for the specific project and client (e.g., advance deposits, production expenses, milestone payments, advance payments, etc.).
- Interest should accrue from the original invoice date, not the original due date.
- The original language stated that “invoices are due” doesn’t create an affirmative obligation for the client to pay. This revision makes clear when payment must be made.
- If the contract doesn’t provide an affirmative right to make a set off against invoices, then there is no need to state that setoff or deduction isn’t permitted.
- At current rates, default interest could be much higher.
- A fee dispute clause should not be included. Not only are these prone to abuse (allowing clients to manufacture “disputes” to withhold payment), under the AI drafted language, nonpayment because of a dispute is not a breach of the contract. The agency can’t even sue to collect or stop work due to a “good faith” dispute. Certainly the client’s view of a “good faith” dispute differs from the agency’s view.
- Work stoppage clause triggered for non-payment and lack of cooperation.
If work stoppage is permitted by agreement, doesn’t also need to state that stoppage is not a breach. - Good work stoppage clause should make clear that resuming work is subject to agency’s availability when problem is cured.
- Agency should be permitted to adjust SOW fees and schedule as a result of work stoppage (had agency known the client would take longer, it would have charged a higher fee)
- Revised tax clause provides clarity about after-assessed taxes.
- No client-specific preferences are reflected in the AI output.
Multiply this over the scope of an entire MSA and think of what other gaps may be present. Also, which of these examples would you rather put in front of your clients? Think you are saving time and money using AI? Considering the problems in the above example, the hidden costs might be far greater than any legal fees you were trying to avoid.
How Agencies Can Use AI to Improve Contracts
This doesn’t mean you shouldn’t use AI for any legal-adjacent work. We’ve found that AI can be a great tool for agencies to explain how a particular clause works or what it means. Rather than asking AI to suggest edits to your lawyer-drafted contract, consider asking AI for a list of questions to ask your lawyer about how to best use the newly drafted contract. Another option is to use AI for suggestions on business issues. For example, if you describing your project, fee, and costs to AI, you can ask for suggestions on how to structure payments to minimize payment risk while also communicating value to the client. Just be sure to have your lawyer check over any language that AI suggests to ensure it is well written and ties to the rest of the contract.
AI is becoming an indispensable tool for creative agencies, and you should absolutely use it throughout your business. But contracts aren’t designed through intuition. They’re built through specialized legal judgment and industry-specific experience. AI doesn’t replace that. It can only reflect the quality of the instructions it’s given.
To avoid the hidden costs of generic legal drafting, treat AI-drafted contract language just like any other generic template you find on the internet and get it reviewed by your lawyer. Any legal expense you pay will be far outweighed by the pitfalls you avoid.
