What is a Contract Lifecycle Management System?
If you’re like most organizations, 70%-80% of your operations involve contracts of some kind. Managing the lifecycle of these contracts is a time-consuming task yet one that’s essential to keep your company running smoothly.
Contract lifecycle management (CLM) is a way to track and manage a contract from its initial request through its execution and onto its possible renewal, amendment, addendum, or termination. Embracing modern contract lifecycle management practices can result in significant improvements in efficiency and reductions in workload, risk, and costs – as you’ll soon discover.
Key Takeaways
- A contract lifecycle management system oversees the contract lifecycle from creation to renewal, amendment, addendum, or termination.
- CLM software automates and streamlines the entire contract lifecycle.
- CLM software uses preapproved contract templates and stores contracts in a digital repository.
- Contract lifecycle management can improve efficiency, reduce errors, reduce costs, and improve fulfillment and compliance.
Contract Lifecycle Management: A Definition
A contract lifecycle management system automates the management of an organization’s contracts from initial conception through execution to renewal or expiration. Contract lifecycle management is most often accomplished via CLM software that automates the entire contract lifecycle.
Understanding the Contract Lifecycle
The contract lifecycle consists of eight distinct stages, from request and intake to amendments, addendums, renewals, and termination. Contract lifecycle management can manage and streamline this entire process.
Step 1: Request and Intake
The contract lifecycle begins with the initial contract request. The requesting party should provide key information about the goods or services involved, contact details, key obligations and delivery dates, the contract’s start and end dates, conditions for renewal or termination, and other important facts.
Step 2: Creation and Authoring
After the request and intake stage is completed, the first draft of the contract is created. At this stage, the contract should include all requested terms and conditions and other legally necessary language. Contracts can be created from scratch or, ideally, from preapproved clause and template libraries.
Step 3: Collaboration and Redlining
Once the first draft of the contract is written, it is then circulated to designated internal and external parties for review. These parties redline the contract with recommended changes – and, if necessary, negotiate mutual changes to the contract’s terms and language.
SOURCE: https://thecontractsguy.net/
Step 4: Final Reviews and Approvals
With the changes made, the contract is then routed for final reviews and approvals by key stakeholders from both parties. This final review should include legal staff. Once final approvals are received, the contract is ready to be signed.
Step 5: Signatures, Execution, and Finalization
To be legally executed, the final contract must be signed by authorized staff from both parties. Signatures can be physical or in the form of e-signatures, the latter of which is more efficient and secure. The executed contract should then be sent to all relevant departments within your organization so they can register their contractual obligations and deadlines.
Step 6: Obligations and Commitments Tracking
All contracts should be entered into some sort of tracking system to notify appropriate staff of approaching contractual obligations and deadlines. Both your organization’s commitments and deliverables from the other party should be tracked.
Step 7: Reporting and Auditing
All executed contracts must be stored in a way that provides for easy access by key staff. Access is also necessary in case of any audits. Information stored in each contract should also be fed into your organization’s reporting system for further analysis.
Step 8: Amendments, Addendums, Renewals, and Termination
The final stage of the contract lifecycle includes post-execution changes to the contract as well as activities related to the contract’s renewal or termination date. This includes renewing the contract or allowing it to expire.
How a Contract Lifecycle Management System Works
Contract lifecycle management systems automate all aspects of the contract lifecycle, including:
- Contract creation and data intake
- Negotiation and redlining
- Execution
- Storage
- Search and retrieval
- Reporting and analysis
- Commitment tracking
- Renewal
A CLM system kicks in when a contract is first proposed. It typically uses pre-approved contract templates and clauses that include standard terms, conditions, and language to ensure compliance with both internal and external standards and regulations. For example, a NDA could be requested via a standard intake form, and then when approved, it is automatically converted into a contract that can be executed.
The entire lifecycle is automated, and contracts are tracked throughout the process, speeding up the workflow and reducing costs. Executed contracts and all supporting documents are stored in a centralized digital repository that is indexed and easily searchable. The contents of all executed contracts are subject to detailed reporting and analysis.
The entire process can be automated from start to finish via the use of CLM software, such as Contract Logix’s CLM platform.
A CLM software system employs:
- Secure request and intake forms
- Pre-approved clause and template libraries
- Automated workflows and alerts
- Real-time collaboration tools
- Detailed reporting and analytics
- Real-time dashboards
- E-signature technology
- Cloud-based contract repository
Benefits of Contract Lifecycle Management Systems
Employing a contract lifecycle management system results in numerous benefits to your organization, all resulting in less risk, including the following:
- Fewer errors – Use standardized templates and document every step of the process.
- Increased efficiency – Automate and streamline the entire process, as well as route and store all documents digitally.
- More accurate change tracking — Digitally register changes made at all stages of the process.
- Improved contract access – Store all documents in a digital contract repository.
- Real-time data – Get access to CLM dashboards and on-demand reports.
- Improved compliance – Use preapproved contract templates and a detailed digital audit trail.
- Ensures obligation fulfillment — Track all contract terms digitally and automate deadline notifications.
- Better manages renewals — Track when contracts are due to expire so that they can be renewed, renegotiated, or amended.
Finally, a CLM system can dramatically reduce your cost of contract administration. Research by World Commerce and Contracting (WCC) reveals that companies lose between 6.2% and 12.4% of their annual revenues due to inefficient contracting processes. By automating the entire contract lifecycle and storing documents digitally, much of this contract value leakage can be recovered.
How Contract Logix Makes Contract Lifecycle Management Systems Work
Contract Logix can help you navigate the complexities of contract lifecycle management with our robust CLM software. We’ve helped thousands of companies replace their legacy contract management processes with automated CLM systems.
Our Premium CLM platform automates the entire contract lifecycle and centralizes the storage of all your contract data. We’ll show you how to make CLM work for your organization – and realize all the benefits possible.
Contact Contract Logix today to learn more about how you can employ a contract lifecycle management system in your organization.