Signing contracts is something all businesses do, regardless of their size, industry, or profitability. Being able to spend less time filling out agreements and more time building relationships is ideal.
In this article, we’ll cover everything you need to know about contract lifecycle management, including:
- What contract lifecycle management (CLM) is
- Why CLM is important
- The 7 stages of CLM
- CLM software benefits
- Common challenges of CLM
- Frequently asked questions
Ready to learn more? Let’s get into this.
What Is Contract Lifecycle Management (CLM)?
Contract lifecycle management relates to the entire process of managing a legal contract. This includes drafting the document, having it properly reviewed, having all parties sign it, then executing it.
More specifically, CLM consists of seven stages:
- Approval and signature
All of these make up the “lifecycle” of the contract — everything involved, from start to finish. We’ll cover each stage in depth later on in this article.
As a concept, CLM helps us understand and keep track of all potential contracts that pass through a business’s workflow. When practically implemented, it offers an organization numerous benefits.
Why Is CLM Important?
CLM is important to consider because all businesses need to sign legally binding contracts to operate. This task might seem like an afterthought, but you’d be surprised at how much time is wasted on this process.
CLM provides you with a way to strategically manage all the contracts your organization must sign and execute. Specifically, it can help you do the following:
- Avoid legal/litigation issues: Simple compliance is often the biggest issue when it comes to legally binding contracts. If the obligations of a contract aren’t met, it can have serious legal consequences.
- Decrease costs: When contracts are mismanaged, there’s potential for significant financial ramifications. Some examples include legal penalties due to non-compliance, payment errors, or missed opportunities.
- Provide more value to your customers: Increasing contract value by effective lifecycle management is one way you can give more to your customers. This can lead to more business as satisfied customers are likely to extend and renew their contracts.
- Improve labor productivity: You can improve your administration’s productivity by improving contract workflows with effective management. They can spend more time doing other things and less time dealing with legal contracts.
Contract Lifecycle Management Stages
As stated earlier, contract lifecycle management has 7 general stages. We’ll cover each one in detail below.
The first stage of a contract’s lifecycle covers the gathering of important information and data related to the document. Stakeholders of the agreement will carry out this task. This initial stage ensures a smooth lifecycle of your contract.
The second stage of a contract’s lifecycle consists of writing the details of the legally binding document. Any contract clauses, important information, and key dates, will be put into writing. All contract parties will be involved with this.
The third stage of a contract’s lifecycle details the negotiation of terms and conditions set in the legal agreement. All contract parties will deliberate and redline, eventually coming to an agreement on the terms, clauses, and conditions.
Approval & Signature
The fourth stage of a contract’s lifecycle has two components: approval and signature.
This involves a review by all the contract parties. The agreement will be examined, ensuring all compliance standards are met. Parties will consider any special terms, milestones, and obligations outlined within the contract.
For an effective approval process to occur, all parties should have access to a consistent, updated record detailing all changes. There must be an easily identifiable audit trail. A CLM software can provide this.
This involves acquiring the signature or signatures of all the contract parties. The signee will typically be someone of high clearance: a c-suite executive, for example. Once the authority figure puts pen to paper, the contract is enacted.
In the fifth stage of a contract’s lifecycle, the contract parties actively acknowledge the outlined obligations in the legal document. This includes the deliverables, payment windows, responsibilities, key dates, and milestones.
The sixth stage of a contract’s lifecycle is about agreeing upon general contractual rules, as well as those specific to the field. The contracted parties must be in compliance with the rules, practices, and standards set by the legally binding contract.
Correct compliance management ensures that problems are avoided. This could potentially be litigation issues/penalties, late fees, and bottlenecks. Appropriate management will make future agreements — whether new or renewed — easier.
The seventh stage of a contract’s lifecycle is about renewal: the contract parties revisit the document, potentially renegotiating terms. Any potential future opportunities between the contract parties will be identified.
Contract Lifecycle Management Software
Now that you understand all the stages of the contract lifecycle, it’s time to cover software.
A contract lifecycle management software allows you to easily control the entire contract lifecycle from requests to renewal. It doesn’t matter how many contracts your business manages; CLM application is highly scalable.
A CLM tool gives you a host of user-friendly features to manage a document throughout its lifecycle. These include automation functionalities, databases, audit trails, and advanced reporting.
These tools can help you discover new possibilities. Your team will be empowered, making the entire contract process more efficient and streamlined. Team members can spend less time on contracts and more time building relationships with clients.
Benefits of Using a CLM Software
There are many benefits to using a CLM solution. These are the most significant ones.
- Improved contract compliance: A CLM application will streamline all the processes associated with managing contracts — the complete lifecycle. There will also be greater accountability throughout the whole process, ensuring crises are avoided.
- Decreased costs: When contracts are strictly adhered to, costs will go down. A CLM tool will mitigate any potential financial risks, such as litigation penalties.
- Increased productivity: Streamlining of all contract lifecycle workflows will free up labor to become more productive. This will ensure less time is spent on contract issues and more on client relationship building and nurturing.
- Reduction of risk: With better document management, thanks to a CLM application, risks will be averted. Compliance of contracts will be met, penalties will be averted, and payment errors will be avoided.
- More prepared for renewal dates: A CLM tool will make all contract lifecycles more efficient, from requests to renewals. It ensures all agreements are ready to be renegotiated without any delays.
Why Signaturely Is One of the Best CLM Software
Signaturely is an electronic signature software that allows you to sign documents electronically. The cloud-based tool lets you effortlessly add electronic signatures to contracts and agreements. It also makes it easy for you to request signatures from others.
With Signaturely, you can significantly streamline your contract lifecycle process. Its robust features will help you manage your workflows, whether that’s one document or hundreds. These are some of Signaturely’s best features:
- Time-saving templates
- Remote signing
- Automated track and follow
- Searchable records and database
- Legal audit log
- Document editor
- Document activity
- Bulk sending
- Team management
Want to save time, effort, and money by streamlining your contract workflows? Try Signaturely for free today.
The following features make Signaturely one of the best CLM application solutions:
- It has a searchable database: This makes it easy to keep track of all the contracts within your organization’s workflow.
- There’s a legal audit log: Ensuring your contracts are compliant is super important; failure to do so puts you at risk of potential litigation penalties.
- Contracts can be signed from anywhere: The remote signing feature allows all contract parties to put pen to paper anywhere. All that’s required is an internet connection.
- It’s affordable: Signaturely is appropriately priced for businesses with extensive contract workflows. There’s also a free option that allows you to test it out.
How to Define the Requirements to Purchase a CLM Solution
Once your contract managers have analyzed the potential benefits of using a CLM tool, it’s time to consider a purchase. The next step will be defining the prerequisite tasks before choosing an appropriate provider.
These are the six essential steps you need to take before making a purchase:
- 1. Create an evaluation committee: Representatives from all departments of your organization should be added to an evaluation committee. A CLM application will affect all employees from sales and marketing to legal, accounting, and HR.
- 2. Involve your Chief Information Officer (CIO): Given that your CIO gatekeeps all your IT systems, they should be involved in the process of selecting a CLM software. They have expertise in implementing new technology within existing ones.
- 3. Conduct a review of your contract lifecycle: You must evaluate your existing contract lifecycle. Draw a mockup of your typical contract lifecycle. This will be done primarily by contract managers, but it should also involve evaluation committee members.
- 4. Dive deep and uncover any special considerations: You need to go further than just a mockup. Identify any industry-specific concerns regarding your contract lifecycle. This might include regulatory or compliance guidelines and requirements.
- 5. Put together an evaluation rubric: You’ll need to create a rubric that allows your committee to effectively evaluate potential CLM software solutions objectively. Ensure it prioritizes criteria that are more important for your organization.
- 6. Reach out to CLM software options with a discovery call: Host discovery calls with CLM software providers, and evaluate the options with your committee. The previous steps should adequately prepare your organization to make an appropriate decision.
Common Challenges Facing Contract Lifecycle Management
Managing the lifecycle of a contract involves a lot of interaction between departments within an organization. Every stage of the lifecycle, from request to renewal, has the potential to cause problems. Here are five common challenges of CLM:
Lack of Standardization
One of the primary challenges of CLM is the inconsistency of contracts within an organization’s overall contract lifecycle. Some are worded differently than others, and clauses vary. This creates more work for legal departments.
A CLM software ensures all your contracts are standardized, saving you time, effort, and money.
Lack of Communication
Given that there are so many stages within the lifecycle of a contract, poor communication can occur. This is even more likely when you consider that there are multiple contract parties involved.
Contract lifecycle management is all about ensuring communication is solid. A CLM tool will help accomplish this.
Limited Contract Visibility
When managing the lifecycle of potentially hundreds of contracts, it’s easy for some to be missed or go unnoticed. A contract’s value depends on its terms and conditions; if you don’t understand this, you’re going to lose money.
With a cloud-based database, complete with a search function, CLM software allows you to keep an eye on all your organization’s contracts.
Compliance and Regulatory Issues
Every industry has its own compliance and regulatory issues; companies need to ensure they meet these conditions. When managing large quantities of contract lifecycles, it’s easy for these to be missed. Issues could include data security, environment, and employee safety.
Having a CLM tool will help keep you on top of these industry-specific concerns, avoiding any litigation penalties.
Ineffective Supply Chain Management
Companies are only as effective as their supply chains. This is one of the biggest problems contract lifecycle management deals with. The relationship between an organization and its suppliers is determined by the contracts they agree upon.
One of the best ways to bulletproof your supply chain is to consider using a CLM tool. It’ll ensure maximum productivity in dealing with the entire lifecycle of contracts.
Long Negotiation Cycles
The negotiation process of the contract lifecycle can delay the approval and signage of a document or agreement. Contract lifecycle management tries to address this potential concern; a lack of visibility and poor communication can be factors.
The right CLM tool can alleviate this concern as it views the terms, clauses, and conditions and sends notifications.
FAQ on Contract Lifecycle Management
Do I Really Need a CLM Solution?
That depends. Do you want to save time, decrease costs, and improve labor productivity? If the answer is yes, then you absolutely need one.
How Does AI Impact Contract Lifecycle Management?
Artificial intelligence improves CLM: it makes it faster, increases efficiency, and offers features like contract analytics and reporting.
Is It Difficult to Implement Contract Lifecycle Management?
It depends on your current contract lifecycle management strategy. If you’re doing things manually, it might be difficult without the help of a cloud-based CLM tool.
Is CLM Software Based in the Cloud?
Yes. These days, CLM software is primarily offered as a cloud-based solution. This makes it accessible from anywhere at any time.
Is It Possible to Outsource CLM?
Yes, it’s absolutely possible, but it isn’t necessary, thanks to modern cloud-based CLM software.
Do I Need Training to Implement Contract Lifecycle Management?
The quality of your current strategy will determine whether you need training. Whether or not you’re using CLM software is a huge consideration, and most have robust onboarding/training.
What Are the Main Risks Involved in Contract Lifecycle Management?
The risks of CLM vary, ranging from financial and legal-related risks to security and brand issues.
Financial risks might include the loss of money from missing key contract dates or ignoring a rollover clause.
Legal risks might include litigation issues, which could arise from a lack of contract compliance. Industry-specific requirements might be forgotten.
Security risks might include data security issues, such as breaches, exposing vital information. Your contract parties, like suppliers, could be affected; this could lead to legal and financial consequences.
Brand risks might include decreased online reputation and perception among your target market and industry. These could arise from any of the potential financial, legal, and security risks mentioned above.
In this article, we covered everything you need to know about contract lifecycle management. We explained the concept in detail, why it’s important, the problems it faces, and software solutions.
Want to save time, effort, and money on your organization’s contract lifecycles? Sign up for a free Signaturely account today.