What is Contract Lifecycle Management and how can it help your business?

Table of Contents:

  1. What is contract lifecycle management and why is it needed? 
  2. What are the stages in the Contract Lifecycle Management process?
  3. How to get started with a contract lifecycle management software

Contracts go through a long journey with lifecycles that feature numerous stops between creation and execution. And without proper contract lifecycle management, a business may be looking at serious financial and operational risks. It gets even more disturbing considering organizations have to manage multiple contracts at the same time.

The contract process is a crucial part of any business. This is because contract elements are not only important for binding, but they are also essential in determining how an organization performs. Cottrill research reveals that contracts govern  60 – 80 percent of business transactions.

60-80% of business transactions governed by contracts

It is safe to say that organizations need to invest in contract lifecycle management software to manage its numerous contracts at different lifecycle stages. The benefits are endless - prevents disputes, reduces legal risk, improves performance, and outlines the organization’s revenue generation process.

But first…

What is Contract Lifecycle Management and why is it needed?

CLM (Contract lifecycle management) is the careful process of managing how contracts are created, reviewed, approved, and executed. Through the lifecycle of a contract, you can understand how it evolves through contract phases from draft to execution and maybe renewal.

The process involves collaborative amendments and reviews from all parties involved before it is approved and signed. By defining a unified contract lifecycle process, businesses can create a central language to accomplish the essential elements of a contract with greater consistency.

That’s not all; an established CLM provides reusable core templates to save time without errors. Since contracts play a vital role in business, documenting the details and terms in a contract is essential. And these terms, such as dates, pricing, and signatories, must be managed effectively. 

Without an effective contract lifecycle process, the organization can miss deadlines, overpay, and incur penalties and legal issues. All these have direct negative impacts on business operations and profits.

What are the stages in the Contract Lifecycle Management process?

An effective contract lifecycle management process consists of 9 stages:

  1. Contract Request
  2. Contract Creation
  3. Contract Collaboration (Contract review, contract negotiation & contract approval)
  4. Contract Signing
  5. Contract Execution
  6. Contract Tracking and compliance
  7. Contract Expiry
  8. Contract Renewal 
  9. Contract Analytics and post-execution

Some organizations pay more attention to some of these stages above others, but they are important. The advent of CLM software has made contract templates and their management more widespread.

However, other post-execution processes like performance tracking have also gained prominence for making businesses better. Below, we’ll take a closer look at each of the stages of contract lifecycle management.

1. Contract request

The contract lifecycle begins with a business entity submitting a request to enter into a contract with another party. A contract request contains all relevant information pertaining to the deal at hand, such as the parties involved and their contact information, a description of the product or service being offered, pricing details, contract start and end-dates, and any other important considerations specific to the deal in question. 

You can manage this process manually using a printed request form or PDF. But it would be best to use a contract automation software because a thoroughly-documented contract request process can convert potential leads.

2. Contract creation 

Contract authoring or contract creation, is the process of creating a contract based on the information garnered in the request phase. In this stage, the contracting parties work out the terms and conditions of their contract.

Contract authoring is one of the most important stages in CLM because it sets the tone for future contract performance and compliance. If a contract is poorly written or contains ambiguous clauses, it may create unnecessary legal problems that may be difficult to resolve. That’s why so many businesses are  turning to contract automation software to help streamline their contract authoring process.

Contract automation software enables users to create documents by leveraging a library of templates, pre-approved clauses, and  automated redlining.

3. Collaborate (review, negotiate & approve)

Contract collaboration consists of contract reviews, contract negotiations, and contract approval. This trio requires constant collaboration between all the parties' representatives in a contract agreement. 

It encompasses legal and commercial terms and can take a while before the concerned parties arrive at an approval. A contract lifecycle management software will provide features, such as redlining and version comparison, to make this process seamless.

4. Contract signing

Before a contract becomes binding, the parties or representatives would sign the agreement. You can do this digitally or on paper, and it may even require multiple approvals within an organization. Also, it may create bottlenecks that stall the effective contacting process.

On the flip side, CLMs have dynamic eSignature functions that simplify the process. Digital signatures drastically improve your time-to-signature which has a positive influence on your closing rate. There is no need to print, mail, and scan the document manually as everything is managed in one flow. Then, execution can begin based on the terms agreed within the contract.

5. Contract execution

After signing a contract, the next step is to execute the agreement so it’s legally binding. Contract execution simply means putting a contract into effect. For example, if a public works project is included in the annual budget, and an agreement is signed between the city and a contractor to begin construction, that’s contract execution.

6. Contract tracking and compliance

Gather all your contracts - both the new ones and old legacy contracts - in a single organised flow to gain a greater overview. Make sure they are sorted in folders and filtered in tags, so you have all your contacts available at your fingertips. Storing your contracts in a secure cloud makes them accessible from anywhere while you still make GDPR compliance easier when you store personal data in an organised manner.

Contract tracking is essential for ensuring that each party complies with the terms and conditions. It reduces all forms of risk and makes information available for a larger scale audit. Since manual audits are prone to errors, it’s advisable to use CLM software to generate quick relevant reports. During the performance tracking, you can review the success of your agreement and determine whether you need to renegotiate, renew or terminate it.

7. Contract expiry

Contract expiry happens at the contract's closing date when all contract terms have been made, including service delivery, payment, etc. At this point, each party in the contract is no longer under any obligation. They can then proceed to terminate the agreement or initiate a renewal.

8. Contract Renewal

After the contract expires, the parties can initiate a renewal to go into another contract with either the same or updated conditions. A CLM system notifies all concerned parties, and the process begins again.

9. Contract analytics and post-execution

Contract analytics is the process of extracting and analyzing data from existing digital contracts. Through this process, you can identify the most favorable terms in your contract, determine whether the contract was breached, and gain insights for future contracts.

Contract analytics functions include extraction of parties, dates, payment terms, termination clauses, indemnity clauses, and limitations of liability. The extracted data can then be analyzed using a variety of analytical tools including word clouds and other forms of text visualization. You can manually analyze your contracts if only available in PDF or Word format, but it's much easier if your contracts are stored electronically in a database — where they're easily searchable — or in a CLM system that includes automated extraction tools.

The post-execution phase also involves monitoring performance metrics on both sides of the contract. These metrics will help determine whether or not either party is breaching the contract's terms. In addition to monitoring performance metrics, it is also important to ensure that all necessary documents are being stored securely and that access to these documents is limited to only those with a valid business need.

How to get started with a Contract Lifecycle Management software?

Having established the benefits of an effective CLM and the potential disasters of the absence, how do you get started?

Contractbook is providing all-in-one Contract Management solutions for all businesses to take advantage of.

With numerous features that get you through all the stages of CLM, all parties can get the best contract possible. Features like templates, alerts and notifications, eSignatures, and a centralized contract repository can position your organization better. Using a simplified management process, you can foster better relationships with your clients and partners.

Moreover, an outdated CLM software can lead to damaging consequences, but with Contractbook, you can keep track of all contract terms. Businesses that use Contractbook have access to wide-ranging straightforward interactions with business associates. Hence, they can draft contracts, review terms, monitor compliance, reduce costs, mitigate risks, and get more productive.

Contractbook is also scalable, has a friendly user interface, and integrates readily with other essential contract lifecycle management software.

You can schedule a demo with Contractbook immediately and we’d be glad to give you all the clarification you need. You can compare the different plans and features at our Pricing page where you will also find a calculator to determine what plan is best for you.

Favor Ejekwe
How to Increase Your Average Contract Value

How to Increase Your Average Contract Value

How to Increase Your Average Contract Value

date icon
June 7, 2022
June 7, 2022
location icon
Register Now

Industry insights you won’t delete. Delivered to your inbox monthly.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.