Contract Lifecycle Management

Every business relies on contracts to keep their operations running smoothly, but managing them effectively can feel challenging. A report by KPMG believes that 40% of a contract’s value is lost due to poorly managed contract processes. 

For this reason, contract lifecycle management is the best solution for any struggling business. It’s a structured approach to handling contracts from start to finish, including drafting, reviewing, signing, tracking, and renewing, all while reducing errors and saving time.

What is Contract Lifecycle Management?

Contract lifecycle management or CLM is the process of managing all aspects related to a contract. This includes everything from creating, negotiating, and executing the contracts to monitoring their performance and maintaining compliance until they are renewed or expired. 

Trying to manage all these stages manually can be time-consuming and error-prone. In fact, human-led contract review processes take up to 92 minutes on average, which adds up quickly if the business is handling a lot of contracts.

CLM helps simplify these stages, making the entire process smoother, thus reducing errors, and saving time.

With the help of CLM software, businesses get to automate repetitive tasks, centralize contract data, and maintain consistency across all contracts. This not only improves efficiency but also reduces risks as obligations are met on time.

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What Are the Stages of Contract Lifecycle Management?

The contract lifecycle management covers several essential stages, from initiation to renewal. Each stage has its purpose, thus helping businesses handle contracts seamlessly. Let’s understand these stages in detail: 

Template Authoring

The process begins with creating standard contract templates that can be reused across different agreements. By using predefined clauses CLM helps speed up the drafting process, reduces errors, and ensures consistency across contracts.

Contract Creation

With templates in place, contracts are created automatically based on specific criteria, such as the region or product involved. CLM software makes this process easy by dynamically assembling the contract, incorporating the correct clauses, and applying the necessary terms through automation. 

This reduces the time spent manually on creating each contract and ensures accuracy.

Negotiation

The next stage is negotiation, where all the terms and conditions are discussed and refined. 

This can often be the most time-consuming part of the contract framing process. However, CLM systems make tracking changes easy, thus helping to speed up negotiations by being transparent and eliminating errors that can result from manual tracking revisions.

Contract Review

Once the contract is drafted and negotiated, it’s reviewed to ensure compliance with business objectives and legal requirements. CLM software automates much of the review process, highlighting key areas that need attention and making it easier to track required changes.

Contract Approval

The approval process is typically managed through predefined workflows, ensuring that each contract is reviewed by the appropriate stakeholders before being finalized. CLM software streamlines this by automating workflows, speeding up approvals, and ensuring proper oversight.

Contract Execution

Gone are the days of waiting weeks for contract approvals. Recently, an NFL quarterback executed a $10 million contract from his phone while sitting in a fast-food parking lot! This was all possible due to CLM software. 

They integrate with electronic signature platforms, allowing contracts to be executed quickly and securely, no matter where the parties are.

Contract Performance and Renewal

Once the contract is executed, it’s essential to monitor its performance and track milestones. CLM software helps ensure all obligations in it are met, and it alerts businesses when contracts are nearing expiration or need renewal. 

This proactive approach reduces pending contracts and improves trust within partnerships.

Why is Contract Lifecycle Management Important for Businesses?

CLM software helps businesses by streamlining processes, reducing errors, and maintaining compliance with legal and regulatory standards. Other benefits of CLM for businesses include: 

• Faster, more accurate contracts: CLM software speeds up the contract process by organizing documents and automating approval workflows. This reduces delays, ensuring contracts are finalized quickly and accurately.
• Improved contract organization: Contracts are stored in a central digital repository, making it easy to access and track key details. With a searchable database, stakeholders can find documents instantly without sifting through piles of paper.
• Enhanced compliance: CLM software helps businesses stay compliant by tracking deadlines and automating notifications for critical dates, such as contract renewals or terminations. It ensures all parties meet their obligations, minimizing risks associated with non-compliance.
• Eliminate manual errors: CLM tools reduce human errors that could otherwise cause costly contract disputes. Automated templates and predefined clauses eliminate the need for manual entry, ensuring consistency and reducing legal risks.
• Better visibility: With customizable dashboards, CLM systems provide a clear view of all contracts in real-time. Decision-makers can access performance data and make informed choices about contract renewals or re-negotiations.

An optimized contract lifecycle management system can also streamline financial transactions. 

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How Does Contract Lifecycle Management Software Work?

Having an end-to-end contract management software simplifies the entire contract process, making it faster and more efficient. Here’s how it works step-by-step:

• Contract Drafting: All CLM tools start with pre-built templates that can be customized for specific deals. Users get to add or modify clauses, and the software checks for errors automatically, ensuring everything aligns with the terms and conditions.
• Workflow Automation: CLM systems even streamline approval processes by automatically routing contracts to the right team members for review and sign-off. This reduces delays and speeds up the contract cycle.
• Electronic Signatures: With there in-built electronic signature functionality, CLM software allows contracts to be signed digitally, eliminating the need for paper and ink. This accelerates the contract completion process.
• Monitoring and Alerts: After the contract is signed, the system continues to track key dates like renewals and performance milestones. The automated alerts ensure nothing is missed, keeping contracts compliant with laws. 
• Analytics and Reporting: They also collect and analyze data throughout the contract lifecycle. This helps them provide actionable insights, helping businesses evaluate contract performance and make data-driven decisions.

By automating each stage of the lifecycle, CLM software reduces contract cycle times, enhances compliance, and minimizes risks. 

What Are the Challenges of Contract Lifecycle Management? 

Remember, contract lifecycle management comes with its share of challenges, which can affect an organization’s ability to fully realize its benefits. Some of the main challenges of CLM software include: 

Inconsistent legal language

CLM software can struggle with complex legal terms and ambiguous language often leading to confusion and misinterpretation. To help with this, contract templates need to have a uniform flow and legal experts should be hired for clarity and compliance with industry standards. 

Proper training programs can also help improve stakeholder understanding of contractual terms.

Lack of consistent processes

Without proper workflows, organizations can face delays and inefficiencies. Thus, establishing a standardized approval process and automating repetitive tasks can help smooth the contract handling process. 

Employees also need to continuously review and optimize contracts to maintain efficiency.

Storage issues and disorganization

As the number of contracts grows, managing them can become increasingly complex. This implementation of centralized contract repositories and document management systems can help organize contracts, improve accessibility, and make retrieval easy through categorization and tagging.

Stakeholder misalignment

Usually, conflicting priorities among stakeholders can disrupt contract progress. To maintain good flow, establishing clear communication channels and involving all relevant parties early on can help with alignment and collaboration from the start.

Lack of clarity and transparency

Without proper transparency in contract data, goals, and changes in the organization, misunderstandings can arise. CLM tools offer audit trails, tracking mechanisms, and reporting features to enhance visibility and ensure all stakeholders are on the same page.

How Can CLM Be Integrated with Other Business Systems?

Integrating CLM with other business systems enhances efficiency, collaboration, and data accuracy across different departments.

CLM is usually considered a part of enterprise resource planning (ERP) systems. By embedding CLM into ERP platforms, organizations benefit from a unified system where contract data can be accessible alongside other core business operations like procurement, finance, and supply chain management. 

This helps in reducing duplication of efforts and ensures contract data is synchronized with other business processes. 

Similarly, CLM and CRM systems complement each other. While CRM focuses on managing customer relationships and sales interactions, CLM systems handle contract creation, negotiation, approval, and tracking.

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