What is Contract Lifecycle Management and how can it help your business?
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.
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.
- What is Contract Lifecycle Management (CLM)?
- The Business Need for CLM
- Stages in the Contract Lifecycle Management process
- Getting started with a Contract Lifecycle Management Software
What is Contract Lifecycle Management?
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.
The Business Need for CLM
An established CLM software 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 effective contract lifecycle management, an organization can miss deadlines, overpay, and incur penalties and legal issues. All these have direct negative impacts on business operations and profits.
CLM removes the need for manual processes and replaces them with automated workflows that provide your employees with more time to focus on creative tasks and building relationships.
Stages in the Contract Lifecycle Management process
An effective contract lifecycle management process consists of 9 stages:
- Contract Request
- Contract Creation
- Contract Collaboration (Contract review, contract negotiation, and contract approval)
- Contract Signing
- Contract Execution
- Contract Tracking and compliance
- Contract Expiry
- Contract Renewal
- 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 templates to help streamline their contract authoring process.
CLM software enables users to create documents by leveraging a library of templates and pre-approved clauses.
3. Collaborate (review, negotiate, and 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, task management, and version control, 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 organized 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 organized 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. Smart reminders with task suggestions based on auto-detected dates in CLMs make work easy for all teams involved.
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.
Getting 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?
It is best to look for all-in-one Contract Lifecycle Management solution for maximum ROI for your business.
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.
One thing to be mindful of while selecting CLM software is to make sure that it is not reliant on formats like PDFs or Word docs as it can lead to damaging consequences for your contract data.
Contractbook is an all-encompassing platform that ensures end-to-end contract lifecycle management while keeping your data future-proofed. Businesses that use Contractbook create contracts, proactively negotiate, monitor compliance, reduce costs, mitigate risks, and get more productive.
Contractbook is perfect for startups and scaleups, has an intuitive user interface, and integrates readily with other essential business tools. You can schedule a demo 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 to determine which plan is best for you.