Any business, corporation or organization that works with contracts regularly should be familiar with the term contract lifecycle management. If your business is responsible for leveraging legal agreements, CLM will be a vital part of the process.
Through CLM, you can proactively and thoroughly manage every aspect of the contract through the lifecycle of the document. In other words, you will be able to check its progress all the way through from execution to expiration or potentially, renewal.
This process can start with the very first proposal of the contract for a good or service in your business.
How Does Contract Lifecycle Management Operate?
If you want to understand contract lifecycle management, you must be aware of the different stages that occur in this management process. This will also highlight why CLM is so important for businesses that work with contracts.
Request for a Contract
At this stage, a contracted agreement is devised. It’s common for various changes to be made before all parties involved fully accept this agreement and as such, it can be a long process involving many negotiations. Throughout the negotiations, all the involved parties will be able to look at the contract and decide on changes that need to be made.
It’s fair to say that negotiations can be incredibly time consuming, particularly when there are multiple parties all fighting for their needs and requirements. A final agreement will only emerge once all parties are completely happy. This is when the contract will be approved.
The correct use of contract management software can help speed things along here leading to processes becoming more streamlined. This is due to the fact that many software includes tools that will be useful in this type of process.
Organisation and Storage
Contracts must be stored and organized correctly. It’s important that contracts can be found easily when needed and organizing them plays a big part here. Why would a contract need to be found quickly? Even after a contract is signed that doesn’t mean it won’t be changed or edited. At the very least, it could be referenced.
The good news is that storage has been made a lot easier thanks to the incorporation and use of cloud software as well as other pieces of technology. Stepping away from manual or physical copies and moving towards cloud data storage, it’s easy for contracts, to be organized, stored and accessed. A quick digital search can allow for contracts to be located in minutes when the right tagging is used.
Reporting and Tracking
Contracts all need to be tracked through CLM as well. It is possible for data to get lost and for documents to become misplaced or for mistakes to be made. With the right level of tracking, this can be avoided, and mistakes can quickly be corrected. It’s also important to make sure that you remain completely compliant when you are arranging contracts. Often, with CLM, programs can be used that can help ensure that the right level of compliance is maintained through the entire process.
With CLM, you will be able to recognize issues, bring them to light and ensure that they don’t cause further problems down the line.
Re-Negotiating Contracts and Checking Performance
CLM can also make sure that the performance of a contract is constantly being checked over time. There are various ways to do this such as producing reports on renewal term lengths will give insight into how the contract is performing and whether a change is necessary. If a contract has become obsolete, action will also need to be taken.
What if a contract has started to underperformance? If you are aware of this issue, you can renegotiate for a more beneficial agreement that is going to be as efficient as you need it to be.
These different stages can actually be divided into nine different substages including contract request, reviewing and redefining, approval, execution, storage, records management, search and retrieval, audit and reports, and renewal. Each of these stages plays a key role in contract lifecycle management, and this does show just how complex managing multiple contracts can be for a company or organization.
Why is CLM so Important?
There are a few reasons why CLM is so important for any business where contracts are a main part of the company model. A contract is an important business of how a business works. It provides information on the obligations that the company has to counterparties and in turn the obligations the counterparties have to that business. As such, understanding your contracts and the information they disclose is nothing short of remaining compliant with your fiduciary responsibility.
For instance, you must be aware of whether these obligations have expired or are still active. As you can see above, this is a key part of the information that CLM will keep track of.
The contracting process must also be efficient to ensure that your company remains effective. CLM is key to ensuring that this does occur and with new technology and vast levels of data now part of the equation this has only become more crucial in recent years. You also need to be flexible, ready to make changes and amendments to contractual agreements for the benefit of both your business and your counterparties.
With contracts, it is important that there is also a record that they have ended or indeed expired. You need to be able to show evidence that the obligations included in that contract were indeed upheld. Otherwise, you could run into serious with parties who may argue that you did not remain compliant. As such, CLM could help you avoid legal disputes or at the very least provide the protection that you need.
As well as this, it is important to be aware that the contracts that we are talking about here are examples of sensitive information. You must make sure that security is a top priority when you are thinking regarding storage and organization. You will need to make sure that your contracts are encrypted. By encrypting contracts, if they were stolen, they would still not be readable, and the data would be protected.
There are lots of different types of security systems that you can gain access to with contract lifecycle management, particularly if you are relying on digital storage options. Two-factor authentication is just one example of this where two security measures are needed. In this case, users will need to input a code in two sources or devices to access the contract. Be aware that security is a concern from the very first stage of contract formation, and CLM offers the solution.
Ultimately, CLM is going to increase revenue and lower your expenses by improving efficiency and increasing levels of reliability when handling content renewal. With automated contact generation, errors can also be eliminated, and the entire system can be centralized.
Without CLM, mistakes will most likely be made, particularly when you are dealing with high levels of contracts. It is important to understand that these days organizations are held to a far higher standard with contracts. Make any mistakes and your business reputation could be irreparably damaged. With CLM this can be avoided.
What Teams Will Be Involved in CLM?
It’s true to say that CLM could be beneficial in a range of different industries from manufacturing to telecommunication, healthcare and of course finances. When CLM is incorporated into the workings of these industries, it will involve various internal teams.
For instance, Sales departments will be part of negotiating and measuring the performance of contracts. Legal departments, on the other hand, will always be involved in managing contracts where compliance is a primary concern. Legal teams will work in conjunction with teams for due diligence to ensure that contracts are approved and accepted by management teams. Above all the relevant teams, management groups will be overseeing everyone who is involved in the lifecycle management. They will work to ensure that everyone is working towards shared goals and following the correct protocol.
Choosing the Right CLM Solution
CLM is not a one size fits all set up. A business will have various different needs and requirements that need to be provided for when using a CLM solution. The key is to choose an option that provides the highest levels of efficiency for your contract management. Today, CLM solutions rely on technology to automate and streamline the management of contracts. Doing so, it is possible to reduce cycle times for contracts by between fifty and eighty percent. As such, it is worth making sure that you do choose the right service or indeed software.
As Your Business Grows, CLM Becomes Critical
When your business begins, you might be managing one or two contracts between a small group of parties. The creation and management of these contracts could be simple and easy for you to handle. As your business grows, so to do the number of contracts that need managing. Ultimately, your business model could involve thousands of crucial contracts that could put your company at substantial risk. Staying on top of these contracts requires contract lifecycle management.