Why Use CLM Software for Contract Compliance Tracking?
For today’s organizations that want to grow revenues while cutting down costs, contract compliance tracking is the best way to measure supplier performance and maintain your in-house efficiencies. Eliminating unnecessary costs starts with knowing what risks you are taking on and using your contract management processes to limit your exposure. Contract lifecycle management (CLM) software allows you to identify and assign specific compliance obligations to the appropriate parties and easily and accurately track each item during the lifetime of the agreement.
Five Reasons to Use CLM Software for Your Contract Compliance Tracking
Generally, contract lifecycle management goes through four main stages in every company. First, you identify a need or opportunity that requires drafting a new agreement. Once you have the details in place, you start evaluating suppliers or researching customers who will benefit from your new goods or services. Then, you draw up the agreement and approve it before starting to provide or receive your goods and services. Finally, there is the ongoing management of that agreement including the contract compliance tracking during the post-execution stage.
When you carry out this process in a CLM system, you can simplify even the most complex requirements and track every element of the agreement electronically. Contract management software helps you manage all compliance requirements, from the initial drafting of the agreement through the execution and post-execution phases of your contracts.
Consider the five following reasons why you should use CLM software for contract compliance tracking in your business.
1. Taking a Proactive Approach to Contract Compliance
Contract compliance management is a wide field that usually requires input from multiple experts during every stage of the drafting and negotiation process. Based on your operational requirements, you can use your in-house counsel to pre-draft all your compliance clauses and file these by category, industry, or department. Counsel should collaborate with various technical resources and ensure that all compliance requirements are part of the clause library.
CLM software enables you to build clause libraries that cover all your compliance requirements and provide teams with a quicker way to draft new agreements. Fast turnarounds, from identifying an opportunity through signing the agreement, depend on having pre-approved, legal clauses available to your operational teams.
The compliance clauses should include:
- All the terms and conditions pertinent to the agreement
- Any escalation and dispute resolution procedures that may be required
- Documentation and reporting requirements with clear boundaries between responsibilities
- Details about any demonstrable compliance requirements, including audits, certifications, or any other approved format applicable to the parties in the agreement
2. Building a Template Library that Includes Standardized Compliance Requirements
For regular agreements that revolve around SLAs, periodic purchases, and administrative support services, you can create template agreements that comply with the organization’s internal procurement practices. As contract complexity increases, the less valuable a template will become, but you’ll still have a good basis from which to start.
Template libraries can save a ton of time and effort, as your in-house counsel won’t have to review every single new agreement related to areas that rarely change. Templates should have a clear set of mandates, standardized reports or forms, and a list of all compliance tasks assigned to each party.
Evergreen agreements should receive annual reviews to update templates with any new requirements as it becomes necessary. Once a contract template receives an update, just notify your teams that a new set of requirements now apply, and ensure they are using your contract management software to always access the latest approved templates..
3. Prioritizing Mandatory Legislative and Regulatory Compliance
New laws and updates to regulations require immediate attention from your legal resources. You may have to conduct extensive reviews of all your current contract clauses and templates against the latest set of requirements. Most legislative requirements will require a compliance framework that covers either financial due diligence, quality and environmental procedures, or information security best practices.
When any new legislation does apply, counsel can ensure you have the necessary legal indemnification and liability waivers in place by updating all your compliance clauses in the system.
Operations may have to update their evaluation criteria to transfer these new requirements to your suppliers or vendors, depending on the regulations involved. Managing these compliance clauses and using specific deliverables to track performance during execution phases through a digital CLM platform will prevent increased costs due to fines or corrective actions.
4. Integrating Your Finances with Your Contract Compliance Performance Measurements
To measure your compliance performance effectively, you’ll need to draw in data from multiple systems like finance, ERP, or CRM solutions. Teams will likely already use this information to measure operational efficiencies, but connecting them to the related compliance items will provide greater insights into your contracting strategy.
Compliance costs (and failures) have an impact on your budget. If you can connect these two sets of figures, you’ll be able to identify where your teams aren’t performing according to requirements. Contract management software provides you with a wide variety of integration capabilities, connecting financial and other information management systems directly to your contracts and contract data. You can assign and track costs that help teams to measure performance against compliance requirements that include your internal processes, external legislation, and technical specifications.
CLM systems allow you to track all performance criteria in your line of business (LOB) systems while connecting this information back to the original agreement.
5. Communicating All Obligations and Responsibilities Effectively
Compliance tracking is about clearly assigning all duties and responsibilities to the correct parties and communicating these requirements effectively. You need to establish your obligations, but also communicate any responsibilities and duties that apply to suppliers or vendors.
If any documents, early notices, or variable costs are part of the agreement, then the schedules, lead times, and calculations involved should be clearly stipulated. Keeping everyone up to date with changes is possible using an approval workflow that requires sign-off from all responsible parties. You can also include performance metrics in the form of KPIs and other compliance criteria linked to a specific agreement to track overall performance, and to notify suppliers early when certain targets aren’t being met.
Establishing Effective Contract Compliance Tracking with ContractLogix
Organizations that need to have clear and definitive insights into their performance and establish effective contract compliance tracking should use contract management software from Contract Logix. You gain improved security and efficiency through a streamlined process to clarify, assign, and track all contract compliance requirements from a single system.
You can connect ContractLogix to your other LOB applications, collaborate with your internal teams or external suppliers, and manage all your compliance requirements from our centralized contract management system. Contract Logix provides you with all the tools you need to speed up your contract lifecycle management processes, assign compliance tasks to team members, and communicate with all parties to clarify issues quickly.
To see how ContractLogix can help improve your contract compliance tracking tasks, schedule a demo to see it in action here.