Contract Lifecycle Management Best Practices

Although contracts are usually left behind the scenes, they’re an essential part of the work of any department. Contract workflows mostly go unnoticed for the vast majority of employees, while everything works as it should. But if some deadline or obligation is broken, it’s possible that everyone feels it.

Weak contract management can lead your business towards various operational and financial risks. That’s why contract lifecycle management is crucial for business.

What is Contract Lifecycle Management?

Contract lifecycle management (CLM) is the management of an organization’s contracts from the initial request through drafting, execution, performance and renewal/termination. CLM software can significantly improve the contract workflow, while saving costs and mitigating risks.

Contract lifecycle management (CLM) software automates and streamlines contract management processes. It automates document templates and streamlines contract redlining, approval, signing, execution, and analysis via repeatable and consistent rules, thus saving time, improving compliance and eliminating errors. In general, contract management software is designed to boost contract process efficiency and remove unnecessary bureaucratic expenses. 

It also helps maximize revenue while minimizing possible liability. In addition, the goal of CLM systems is to mitigate different kinds of risks. Let’s look closer at some best practices for using this tech.

CLM Best Practices

Contracts play a huge role in the success and failure of any company. The digital transformation of the legal department aims to reduce the possibility of failure and help you achieve your strategic goals.

It’s way too challenging to manually maintain a full portfolio of contracts. That’s why companies become more interested in digitizing their contract workflows by implementing CLM. These best practices may help you find areas to create more effective processes and achieve better contract lifecycle management results.

One of the best CLM practices is to automate legal routine. For example, many companies still use a manual approach for redlining and approvals, which requires sending emails, spreadsheets, and different contract versions back and forth. As a result, this is one of the slowest parts of contract management.  

With automated notifications, you can get the necessary approvals much faster. The same goes for contract drafting. More than 80% of in-house lawyers are involved in reviewing and drafting documents that don’t even require their involvement. A much quicker way is to retrieve data for new contracts, instead of reentering and checking them each time.

Standardize Contract Authoring and Execution

Drafting contracts from scratch is a time-consuming process. To increase productivity and avoid errors, you can use your CLM for document drafting. Thus, you’ll create contracts in seconds instead of hours while dramatically reducing time lawyers spend on reviews. To better understand the effect of automating routines, here’s a look at the numbers: CLM saves up to 82% of a lawyer’s time!

On top of that, if contracts follow a template, they’re easier to edit and review, as you’ll only focus on terms that are specific to each transaction. And unlike manual drafting, which opens the door for countless errors, ready-to-use templates reduce the risk of errors.

Accelerate Approval Process

CLM can also help avoid the situation where you’re forced to look around for the right person to sign the contract and avoid delays in the approval process. Once there’s a need for their signature, they’ll receive a notification. With eSign, you can gather all the necessary signatures in no time and execute documents anywhere. It’s convenient because many people nowadays view documents from their phones.

Also, electronic signatures can be integrated into your automated workflow. For example, once your client signs an NDA, you can automatically send another document that needs to be signed. On top of that, it saves money because you need less paper, which gives the added benefit of making your business greener.  

Track Documents and Set Notifications

Contracts contain information about dates, terms, costs, and so on. Shared folders, emails and spreadsheets provide poor visibility. However, this aspect is quite important if you want to comply with regulatory requirements, be sure about the versions of documents you use, and not miss key dates. According to a survey, 26% of lawyers who store contracts in different locations miss at least 1 renewal a year.

Keeping all contract-related workflows in one place will allow you to avoid unwanted contract renewals and missed obligations. Since all changes are saved in one place, it also can help you track the sequence of contracts and addendums. Create custom tasks via a CLM To-Do panel, save any date or clause, or leave yourself a task or memo so that you won’t need to remember due dates for each contract.

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Explore the essential features, less obvious things to look out for, KPIs to evaluate software performance, and most common CLM-related misconceptions.
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Analyze Performance with Custom Reports

Unlike spreadsheets, a CLM system holds all the data you need in the same system where it’s easy to find, analyze, and report. Data can be processed for tailored reports on how you create, negotiate, execute, and manage contracts. It provides real-time visibility into your processes and risks.

The analytics tools of legal document automation software show how successfully you were working on the contract, how fast you were able to push it through the pipeline, and how quickly you reacted to any changes that were made.

In addition, you can use custom reports to evaluate your business and team performance, and optimize processes if needed. It gives you the ability to set and track KPIs, and make data-driven decisions.

Implement Compliance Reviews and Mitigate Risks

It’s critical to implement risk and compliance reviews in the management process, because all contracts must comply with governmental regulations and company’s policy. Additionally, there’s also compliance within the contract. If there’s a breach in compliance, it may result in fines and penalties.

To protect your organization from this risk of non-compliance, track everything that’s happening in your system with CLM. Contract management software keeps all records under one roof and notifies teams of any legal changes to the company’s procedures.

Through the use of automation, you ensure compliance to your company policy. Alerts and notifications can save you from missed dates and obligations, while real-time reports and analytics can be used to deliver the insights about potential risks in your contracts.

Track Software ROI and Improve Security

A poor contract lifecycle management process is more expensive than you may think. Companies lose revenue because of fines and penalties, payment errors, intracked renewals, or other manual errors. Good contract management actively follows up on all contracts and mitigates different kinds of legal risks.

With a CLM system, you can accelerate the speed of contract management processes and avoid unnecessary delays. Improved visibility will provide better risk management, collaboration, and communication.

With permissions-based accessibility rules, you won’t have to worry about security breaches and the financial burdens they entail. Moreover, proper oversight will allow you to make well-informed decisions, analyze performance, and identify what can be improved in the contract management process.

By correctly using CLM tools, you can cut operating and processing costs related to contract management by up to 30% (while protecting your business from reputational losses).

Collaborate Seamlessly

There are always two parties to every agreement.  When the negotiation process is done manually, document exchange and redlining are conducted via emails and spreadsheets. A lack of real-time updates slows down communication and prevents the tracking of changes. Sometimes parties can’t be sure they’re using the latest version, which entails the risk of approving the wrong document.

Use a contract lifecycle management solution to establish seamless collaboration. Internal document collaboration and editing tools eliminate the need to send emails back and forth while allowing real-time redlining. This way you can accelerate negotiation cycles by 50%.

Contract Lifecycle Management with AXDRAFT

Contract management is a time consuming activity, but it’s vital for every organization. Without an efficient contract management strategy, it’s hard for any business to thrive. CLM solutions make our lives easier as their goals align greatly with the company’s operational objectives.

AXDRAFT is an all-in-one CLM system that covers the entire contract lifecycle and brings all contract-related workflows into one place. It makes data much easier to track, manage, retrieve, and report. Seamless collaboration within the platform will accelerate your approval stage, and dashboards will help you analyze the performance of your contracts.

AXDRAFT has many functions for covering various needs, but if you don’t need all the functions it offers, you can choose the ones you’d like. Or if you need more, we’re capable of building solutions on-demand. 

Implementing a CLM usually results in increased efficiency and higher employee satisfaction as they can focus on meaningful tasks instead of taking care of daily routines and working overtime. If you want to experience the difference between what you have now and what you can get, book a demo with our team.

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FAQ

What are some best practices for contract management?

The best practices in contract management that can be facilitated by technology are:

  • Automation of legal processes
  • Creating a common language, core templates, and unified terms for contracts
  • Using eSign and collaboration tools to speed up negotiations and approvals
  • Increasing traceability of changes and analyzing performance
  • Scheduling reminders for tasks and key dates
  • Build in compliance at every step of the process
  • Monitoring and managing contract costs
  • Improving security
  • Collaborating seamlessly

What are the five key stages of the contract lifecycle?

Each organization has their own procedures for managing contracts and their lifecycles, but generally we can identify five key stages:

  1. Contract request and authoring. This first stage includes contract initiation (specifying the contract type, goals, and signing parties) and drafting (indicating deadlines, terms of service, and means of handling disputes). CLM software can speed it up by using pre-agreed templates.
  2. Contract  negotiation and approval. This stage covers commercial and legal terms, adjustments, discussion of changes, and resolving disagreements. The approval process may involve not only signing parties, but other departments, stakeholders, and individuals designated for internal or external review.  Negotiations may take a lot of time and effort. And since situations can change, all discussions should be recorded.
  3. Contract  execution and obligation management.  After all appropriate parties signed the contract, it’s considered executed and all signees agreed to fulfill their contractual obligations. Parties also agree on the method of tracking contractual obligations to ensure that all contracted parties fulfill their commitments. CLM supports obligations management by storing records in a secure and reliable manner.
  4. Contract audit and reporting. Compliance with rights and obligations during the period of the contract must be followed by each party. It is important to monitor performance, as well as renewals or expiry dates. Otherwise, there’s a risk of reputational and financial damage. Workflow automation facilitates timely notifications and the meeting of all deadlines and obligations. Contract audits help confirm whether parties are in compliance with the contract’s terms and conditions. A contract report can fulfill the same objective as a contract audit, but contract reports can also be used to support and inform individuals responsible for obligations management.
  5. Renewal and/or Termination of Agreement. When a contract expiry date is near, the contract can be renewed with the same, re-negotiated, or terminated conditions. If a contract has to be terminated or renewed, all users should be notified. Automated notifications do it instantly.

What is a contract lifecycle management system?

Contract lifecycle management system is a software that optimizes and streamlines an organization’s contracts during key stages. It automates basic templates and unified language, as well as repeatable and consistent rules, thus saving time, improving compliance, and eliminating errors. It speeds up contract management from start to finish, standardizes and controls contract development, and strengthens operational, contractual, and regulatory compliance.

Why is contract lifecycle management important?

CLM helps organizations minimize contract risks, comply with regulations, audit contracts for performance, and stay organized from beginning to end. Effective contract lifecycle management translates to cost and time savings for any organization. Among the benefits it may provide:

  • Enhanced compliance with controlled processes, automated tracking, and a full audit trail
  • Notifications for key milestone dates
  • Integration of contract processes with third-party systems
  • Control non-standard agreements through modification alerts
  • Greater visibility with dashboards and configurable reports
  • Faster negotiation and approval processes with collaboration tools
  • Reduced time and expenses for shipping and signing multiple contract copies with esignatures

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