What is Contract Lifecycle Management (CLM)?
Understanding Contract Lifecycle Management
Every business has contracts. They form the foundation of any enterprise, influencing revenues, expenses, workflows, procurement, and virtually every other operational aspect of the company. And as a business grows, so does the number of contracts that need to be managed.
Contract lifecycle management, or CLM, refers to the processes that streamline the creation, oversight and management of contracts. Contracts are living documents and failing to properly manage them can expose your company to risk and significant losses. Without insight into all of your contracts (which could number in the thousands) it’s virtually impossible to effectively manage every agreement at every stage of the lifecycle, from drafting to execution to post-execution analysis.
CLM streamlines this process. It provides actionable insights at every stage of the contracting process, while also eliminating bottlenecks, improving security and decreasing the potential for errors. Instead of spending days or weeks drafting contracts, and then missing out on revenues due to missed milestones – or inadvertently exposing your company to risk with errors, noncompliance, or unmet terms and conditions – you can improve your workflows and bottom-line with CLM.
The Basics of the Contract Lifecycle
To make the right decisions in regard to contract lifecycle management, it’s useful to understand exactly what the contract lifecycle looks like. Contract lifecycles go well beyond simply drafting, negotiating and signing a document. When you see the full picture -- all of the steps that go into a complete contract lifecycle -- then you can unlock the full value of your contracts.
Realizing this value requires implementing nine essential steps into every single contract, no matter how seemingly small or inconsequential they may seem to be. Following these steps reduces the likelihood of a risky contract, prevents important contracts from falling between the cracks, and allows you to optimize your contracts’ performance, improving the overall value of your portfolio.
Here are the nine steps to the ideal contract lifecycle.
- Request. Generally, contracts begin with a request from a specific individual or department, outlining the needs for the contract. Without a streamlined and consistent approach, the risk of a rogue deal or risky terms increases. Effective CLM begins with a standard request process that eliminates those risks while gathering information from the requester that will expedite the drafting process.
- Create. Contract creation is another area that can create risk. While complex contracts are often handled by your company’s legal department, that process can take days or even weeks to complete, slowing down negotiations. In other cases, attorneys may simply create contracts using existing documents as a template or cobbling together clauses from other contracts. Even if everyone uses the same, correct versions of the documents, the process of sending redlined drafts to multiple parties increases the chance of error. With CLM, your team has the option of using a template-based contract creation wizard, ensuring that every contract is drafted correctly and when possible, quickly.
- Approve. Once the contract is drafted, it needs to be approved – and without a centralized, streamlined workflow, not only can the approval process cause delays, but it’s possible that changes or approvals may be made without an audit trail. CLM allows for certain approvals to be automatically included within contracts that meet pre-approved criteria, but also ensures that contracts are only approved after going through the proper channels and that there are meticulous records about approvals and changes.
- Negotiate. CLM helps streamline the negotiation process by providing “playbooks” that include preferred terms and positions, clause libraries and issue lists. When everything is stored and managed in one place, it’s easy to see and compare documents and view redlines, so you know exactly what has been negotiated.
- Sign. CLM makes the process of signing and executing contracts simpler. With digital signatures on electronic documents, both parties automatically receive copies as a record of their agreement.
- Capture. Once contracts are signed, CLM really begins to shine. Instead of simply filing the documents away, the vital data locked inside those documents are turned into structured data. The documents and data are then centrally stored to enable quick, secure access.
- Comply. Analyzing contracts for risks and opportunities is only part of the story. It’s also vital to ensure compliance with all contract obligations, terms and conditions, as well as regulatory compliance. This is often challenging when you have thousands of active contracts, but it can be made simpler with a CLM system. With your documents centrally stored and data universally structured, CLM allows custom, granular alerts and reminders to be created, sending notifications when predetermined criteria is met, including upcoming renewal dates.
- Manage. Keeping track of orders, amendments, renewals, terminations and performance targets is challenging – and often a source of lost revenue and increased risk. Again, centralization and visibility provided by an advanced contract platform takes the guesswork out of managing contracts with instant access to prevailing terms and key dates.
- Optimize. Finally, the contract lifecycle includes using your data to optimize performance and efficiency. You need a continuous feedback loop between your contract portfolio and business performance to ensure you’re getting the most value from your contracts. CLM provides this feedback, letting you easily identify areas that need improvement.
How to Get the Most from Your Contracts
The more contracts your business has, the more challenging it becomes to successfully implement all of the steps in a contract’s lifecycle. Manually analyzing contracts for non-compliant terms, for instance, can take hundreds of working hours and is potentially error-prone. Implementing a contract lifecycle management platform eliminates that problem by changing processes in four key ways:
- Collaboration and Control. Collaboration across teams is a necessary part of contracting, and a CLM platform ensures full transparency while also making the process easier. It also ensures full control, providing audit trails, restricting access to specific data and processes, and supporting complete regulatory compliance.
- Organization. Do you know where all of your contracts live? Are they scattered throughout the company in various filing cabinets and on different hard drives? Is everyone working from the same databases? CLM ensures that your contracts are organized and consistent, so everyone within the organization knows where to find correct, truthful information.
- Analysis. CLM analytics serves two purposes: Locating and analyzing contract terms to identify and mitigate risk and analyzing processes to streamline contract development.
- Integration. A robust CLM platform integrates fully with existing ERP, CRM, SRM and DPM systems, allowing information to be shared and extracted for accurate visibility into operational responsibilities, relationships and risk.
Ultimately, implementing an enterprise-wide CLM platform helps ensure that all steps of the contract lifecycle take place, and that everyone involved with contracting has a 360-degree view of contracts – not just “their” part of the process. This will reduce costs, increase revenues, improve compliance, and give you more certainty about the overall contracting process and the amount of risk faced by your business. To learn more, download the Guide to Contract Lifecycle Management.