Contract lifecycle management: What you need to know

Every single contract has a beginning and end. For some, that may be a few months while others may last for decades. Whatever the length, it’s still considered part of the contract lifecycle.

What many people aren’t aware of is that there’s a specific discipline known as contract lifecycle management that, when used properly, can provide numerous benefits to brands of all sizes.

In this guide, you’ll learn what contract lifecycle management is, the core components of contract lifecycle management, and so much more.

What is Contract Lifecycle Management?

Contract lifecycle management (CLM) refers to the process of managing contracts from initiation through execution to completion. It involves the systematic management of all phases of a contract, including creation, negotiation, signing, tracking, and renewal or termination.

CLM typically involves the use of software tools to help manage the contract process efficiently and effectively. These tools can automate contract workflows, track contract milestones and deadlines, manage approvals and revisions, and provide centralized storage and retrieval of contract documents.

Components of CLM

There are many moving pieces of contract lifecycle management and each stage plays a vital role in ensuring that contracts are created, implemented, and managed effectively to meet the needs of all parties involved. Let’s take a closer look at each step.

1.   Contract Authoring and Creation

The contract authoring stage is the first step in the CLM process. This stage involves creating a contract document that outlines the terms and conditions of the agreement between the parties involved. The contract authoring process can be time-consuming and complex, as it requires collaboration between different parties, including legal teams, business teams, and other stakeholders.

In large organizations, $215,000 dollars can be lost each day the contract process drags on.

To streamline the contract authoring process, organizations can use contract authoring tools that automate the creation of contract templates, clause libraries, and other elements of the contract. These tools can also help ensure that contracts are compliant with legal requirements and industry standards.

2.   Contract Negotiation

The negotiation stage of the CLM process involves back-and-forth discussions between the parties involved in the contract. The goal of the negotiation stage is to reach an agreement that satisfies all parties needs and interests. It’s important to maintain clear communication and documentation to ensure everyone understands the terms and conditions of the contract.

To streamline the negotiation process, organizations can use contract negotiation tools that provide a centralized platform for all parties to communicate, negotiate, and finalize the contract terms.

3.   Contract Execution

The contract execution stage is where the contract is signed and becomes legally binding. During this stage, the most important thing is to get everyone’s approval and signature. You can use electronic signature tools like DoxFlowy to facilitate the signing process, which can save time and reduce the risk of errors.

4.   Contract Management

The contract management stage involves the ongoing management of the contract throughout its lifecycle. This stage involves tracking contract milestones and deadlines, managing contract revisions and approvals, and ensuring compliance with contractual obligations. You can take advantage of contract management tools to automate workflows, track contract obligations, and provide a centralized repository for all contract documents.

5.   Contract Analysis

This stage involves the analysis of contract data to identify trends, risks, and opportunities for improvement. This stage can provide valuable insights into contract performance, identify areas of non-compliance, and help you optimize your contract management processes.

Use contract analytics tools that provide real-time visibility into contract data. These tools can generate reports and dashboards that provide insights into contract performance, such as contract cycle time, risk exposure, and compliance.

Benefits of Contract Lifecycle Management

Contract lifecycle management (CLM) offers a range of benefits including increased efficiency, improved risk management, better compliance, enhanced collaboration, and cost savings. Let’s look at each one in detail.

A. Increased Efficiency: Effective CLM processes can help you streamline the entire contract management process, reduce manual processes, and improve workflows. By automating processes such as contract creation, negotiation, and approval, save time and reduce errors. Bad data costs businesses $3.1 trillion a year.

B. Improved Risk Management: CLM can help you identify and manage risks associated with contracts. This includes risks such as non-compliance, missed deadlines, and legal disputes. By providing real-time visibility into contract data, CLM tools can help you identify potential risks early and take proactive measures to mitigate them.

C. Better Compliance: Compliance is a critical component of CLM. By ensuring that contracts comply with legal and regulatory requirements, you can significantly reduce the risk of fines, legal disputes, and other penalties. CLM tools make it easier to stay abreast of changing regulations and requirements, ensuring that contracts are always compliant.

D. Enhanced Collaboration CLM can facilitate better collaboration among stakeholders involved in the contract process. By providing a centralized platform for all parties to communicate and collaborate, CLM tools can improve communication and streamline the negotiation and approval process. This helps avoid delays and reduce the risk of errors.

E. Cost Savings: When CLM is implemented properly you save money in multiple ways. By reducing the time and resources required for manual contract management processes, you save on labor. CLM can also help you negotiate better contract terms and reduce the risk of legal disputes and penalties, which can result in massive cost savings.

A. Use cases for CLM

Contract lifecycle management (CLM) has a wide range of use cases across various departments and industries. Here are just a few to take note of. Of course, this list isn’t exhaustive.

1.   Procurement

Procurement is one of the most common use cases for CLM. The procurement department is responsible for sourcing and purchasing goods and services, and CLM can help streamline the procurement process, from sourcing to contract execution.

CLM tools can help procurement teams manage supplier contracts, automate supplier onboarding, and track supplier performance. By providing real-time visibility into supplier contracts, your better able to identify potential risks and take proactive measures to mitigate them.

2.   Sales

Sales is another department that can benefit from CLM. Teams are responsible for managing customer contracts, and CLM can help them manage the entire sales contract lifecycle, from proposal to contract execution.

Sales teams can streamline the contract negotiation process, automate contract approvals, and track contract performance. Like with procurement, by providing real-time visibility into customer contracts, CLM tools enable sales teams to identify and take action on risks to mitigate them in advance.

3.   Human Resources

Human resources (HR) is another department that can benefit from CLM. HR teams are responsible for managing employee contracts, such as employment agreements, offer letters, and confidentiality agreements.

HR teams are able to manage employee contracts, automate the onboarding process, and track employee performance.

4.   Legal

Legal departments are responsible for managing a wide range of contracts, including supplier contracts, customer contracts, and employment contracts. CLM can help legal departments streamline the contract management process and ensure compliance with legal and regulatory requirements. CLM tools can help legal teams manage contract templates, automate contract approvals, and track contract performance.

Choosing a Contract Lifecycle Management Solution

Choosing the right contract lifecycle management (CLM) tool is crucial for you if you want to streamline your contract management processes. When evaluating different CLM tools, it’s important to consider the following factors:

1. Integration with existing systems: One of the most important factors to consider when choosing a CLM tool is integration with existing systems. The tool should integrate seamlessly with other systems such as enterprise resource planning (ERP) and customer relationship management (CRM) systems. This will help ensure that data is consistent across all systems and reduce the risk of errors and duplicate data entry.
2. Scalability: Scalability is another important factor to consider when choosing a CLM tool. The tool should be able to accommodate your needs as your organization grows and changes. This includes the ability to handle a large volume of contracts, support multiple users, and provide flexible workflows.
3. User-friendliness: The usability of the CLM tool is also an important factor to consider. It can have all the bells and whistles but it it’s difficult to use then you’ll have trouble with adoption. The tool should be easy to use and intuitive for all users, including non-technical users. This will help reduce the learning curve and ensure that all users can easily access the tool and perform their tasks efficiently.
4. Security: Security is a critical factor when choosing a CLM tool. The tool should have robust security features such as encryption, multi-factor authentication, and data backup and recovery. It should also comply with industry and regulatory standards which are relevant to you.
5. Cost: The cost of a CLM tool can vary widely. Some are around $100 a month and others can cost thousands of dollars a month. The difference between the features may be minor.  The tool should be cost-effective and provide a good return on investment. This includes evaluating the cost of the tool in relation to its features and benefits, as well as the cost of implementation, training, and ongoing maintenance.

Implementing Contract Lifecycle Management

Implementing a contract lifecycle management (CLM) process in an organization can be a complex task. However, with the right strategy and approach, it can be done effectively. Here are some steps to properly implement a CLM process in your organization:

1. Define your objectives: Before implementing a contract lifecycle management process, it’s important to define your objectives. What do you want to achieve by implementing a CLM process? This could include improving efficiency, reducing risk, increasing compliance, or enhancing collaboration. Once you have defined your objectives, you can design a CLM process that aligns with those objectives.
2. Assess your current contract management process: Before implementing a new CLM process, it’s important to assess your current contract management process. This will help you identify areas of improvement and design a CLM process that addresses those areas. Some questions to consider when assessing your current contract management process include: How are contracts currently managed? What tools are currently used? What are the pain points and bottlenecks in the current process?

3. Select the right CLM tool: There are many CLM tools on the market but each one is slightly different depending on the kind of customer it’s built for. Consider factors such as integration with existing systems, scalability, user-friendliness, security, and cost when selecting a tool.
4. Develop a contract template library: A contract template library can help streamline the contract creation process. It should include standardized contract templates that can be customized as needed and clauses that you can pull to further shorter the contracting process. This will help ensure consistency and reduce the risk of errors.
5. Establish workflows: Workflows are the backbone of a CLM process. They define the steps that need to be taken throughout the contract lifecycle, from creation to renewal. Establish workflows that are easy to follow and align with your organization’s objectives.
6. Train your team: Once you have established your CLM process, it’s important to train your team on how to use the CLM tool and follow the established workflows. This will help ensure that everyone is on the same page and can effectively use the CLM tool.
7. Monitor and refine: Monitoring and refining your CLM process is an ongoing task. Regularly review your workflows and contract template library to ensure they align with your organization’s objectives. Make adjustments as needed to optimize your CLM process.

Common challenges in implementing CLM

Contract lifecycle management (CLM) can be a complex process with several challenges that you may face during its implementation. Here are some of the common challenges that you may face during the CLM process:

1. Resistance to change: One of the most common challenges in implementing CLM is resistance to change. Some stakeholders may resist changes in the contract management process, particularly if they have been used to a certain way of doing things. This resistance can slow down the implementation process and even cause it to fail.
2. Lack of resources: Another challenge in implementing CLM is a lack of resources. Contract management requires a significant investment of time and resources, particularly when setting up the initial CLM process. Organizations that lack the necessary resources may struggle to implement a CLM process effectively.
3. Integration issues: Integration issues can arise when implementing a CLM process. Organizations may face difficulties in integrating the CLM system with other systems, such as CRM or ERP systems. Integration issues can result in data discrepancies, which can impact the accuracy of the CLM process.
4. Data quality issues: Poor data quality is another challenge that organizations may face when implementing a CLM process. Data inconsistencies, errors, and omissions can impact the accuracy of the CLM process and result in contract disputes. This challenge can be particularly difficult to overcome if there is a lack of centralized data management.

Conclusion

Contract lifecycle management is an essential aspect of properly managing and gaining the most benefits from various contracts and agreements. With that being said, a proper system takes energy and time to set up.

This guide has explained what contract management is, the various components, multiple use cases, and much more. If you’re looking to implement CLM in your organization, be sure to check out DoxFlowy which can help facilitate better contract management.