Contract lifecycle management (CLM) software aims to automate and, therefore, simplify contract management processes. It was invented to centralize contract storage, improve compliance, and automate the creation, execution, and management of any contractual agreement type. By creating basic templates and unified language, as well as repeatable and consistent rules, all parties can save time and eliminate errors. In general, contract management software is designed to boost contract process efficiency and remove unnecessary bureaucratic expenses. Let’s examine CLM software peculiarities and benefits in more detail.
Contract management software is designed to boost contract process efficiency and remove unnecessary bureaucratic expenses.
CLM software provides:
- Detailed time management at each stage of contract management
- Automated workload allocation
- Documentation and records tracking for audit and compliance-related procedures
- Alignment of contract management rules and processes
- Transparent performance measurements
As a result, it boils up to the time and resources freed for more high-end, sophisticated tasks.
To better understand the contract signing process and how to improve it with automation, let’s dissect the contract management lifecycle into stages.
The Stages of Contract Lifecycle Management Process Flow
When it comes to adopting CLM software, it is important to understand how the contract lifecycle management process flows. CLM ensures the contract’s complicated journey is comprehended and compartmentalized and serves the organization’s best interests.
1. Contract request
It is the initial stage of contract lifecycle management. One party initiates or requests the contracting process and uses the information received to draft and author the contract documentation.
This stage is known as the “drafting stage,” which defines all the agreement’s details and conditions.
Here, all parties are negotiating the document’s terms and conditions and thoroughly reviewing the contract.
Depending on the contract, it may need internal or external third-party legal approval or both. The approved version is passed to the specialist for a review.
The approved contract has to be signed by all parties, either manually or online.
6. Obligations management
At this stage, it’s time to start working and delivering the results promised in the contract. In other words, the parties have to fulfill the executed agreement. There are various practices to track contractual obligations, and usually, the organization decides what method serves them best.
7. Contract amendments
When it comes to this point, all respective parties go through a new round of drafting, negotiation, approvals, and so on. It’s natural for some conditions to change, especially during long-term contracts.
8. Audit and reporting
Companies should regularly report on the agreements’ execution and performance to all stakeholders. Often, companies must ensure specific contracts are aligned with industry requirements and government regulations.
9. Renewal and/or termination of the agreement
This step is essential as it means a new stage of cooperation for all parties. A thoughtful and on-time contract renewal can benefit everyone, while ignoring the schedule can negatively affect lawsuits.
These are the basic CLM stages businesses should follow when executing an agreement. Some stages may take longer than others due to many human and technical factors. This process is simply a skeleton which is adapted to meet specific business needs.
What is the importance of contract lifecycle management in this lifecycle?
The Goals of CLM
Companies face numerous risks when working with vendors. In this respect, efficient contract lifecycle management systems can make a real difference in risk management. The contract signing process is quite lengthy and has many variables. Without an established approach in place, it’s easy to stumble upon problems. The goal of the CLM process is to address the following pain points:
Speed to market
Intense market competition forces companies to support innovation and deliver results on time. One of the best ways to operate efficiently is to secure contract authoring, negotiation, and execution processes. It will help establish new vendor relationships and shift your focus to customer experience when your business grows. All in all, the strategy will lead to increased income since you won’t be spending time and money on unnecessary bureaucratic tasks.
Contracts should reflect your company’s best interests. By organizing CLM processes, you are accounting for the up-to-date, relevant information from stakeholders and internally addressing appropriate subject matters at each stage.
Risk mitigation is pretty much the focus of all the pre-contract execution stages. The main goal of contract request, authoring, negotiation, and approval stages is to ensure all parties benefit from the agreement while eliminating potential losses.
Performance and compliance management
The thorough CLM process and step-by-step guidance of its execution are an investment into effective and productive vendor relationships. Addressing the regulatory compliance requirements within your contracts ensures vendor cooperation meets your standards.
A successful contract lifecycle management process will support continuity planning with your business partners. Balancing between renewal and termination language in your agreements, your company can obtain the flexibility required to hold vendors accountable while giving you a choice to renew or terminate agreements based on your current market situation.
The legal department is responsible for building an efficient CLM process that will influence your company’s overall operation quality. Fortunately, legal departments these days can omit the majority of monotonous tasks and eliminate many human mistakes with automation software. Let’s discuss how contract lifecycle management software can refine the CLM process.
Contract Lifecycle Management Systems Can Improve the CLM Process
CLM software ensures an effective and proactive contract lifecycle management process flow in the following areas:
- Template authoring
A drafted template library can significantly accelerate contract turnaround. Also, it mitigates some risks by improving contract templates. Moreover, the smart template authoring simplifies the process for users. All because it pulls existing clauses into the document, offers text customization, tags metadata, and adds necessary exhibits and annexures. Before authorizing the ready-to-use template, it has to be approved by the legal department.
- Contract creation
CLM software automatically compiles the necessary content according to associated contract criteria. The default data includes location, products, services, or pricing. Rules-based authoring helps better control contracting operations while improving the agreements’ scalability. Advanced CLM software often permits no-touch contract creation using the company’s CRM data and can build a contract based on a set of specific company’s rules. The self-service content creation model allows organizations to significantly reduce legal operation expenses. As a result, they can boost revenue by making more contracts in less time.
- Contract review
The CLM software workflow usually obtains built-in compliance with the contract lifecycle management process. For example, before sending the contract to the financial systems for execution, the software will send the document to an assigned legal employee for review. And it will comply with the step-by-step contract lifecycle process during each necessary update.
- Contract approval
The contract approval process requires a thorough analysis of the associated data. The best contract lifecycle management software will facilitate the approval process, even when it comes to sequential and/or parallel approvals. The workflows in the system easily adjust to any negotiation updates in the contracts. Usually, users are in charge of manually updating the workflows to the newest requirements.
- Contract execution
Modern CLM software usually features various integrations with online signature services like Adobe Sign. Such integrations help automate the signature process and ensure seamless document updates without human intervention. The software should also support a manual signing of the document, as some parties may be unfamiliar with online systems. This type of software is often equipped with a QR-code technology that helps validate the manually signed documents.
- Contract performance
After its execution, contract administration can also be improved by CLM software. It provides analytics on contract performance cycle times, deviations, the company’s savings, potential risks, agreement expiry, and renewal possibilities. It offers valuable procurement and sales metrics data on contract revenue and expenses as well. The CLM software can also take care of tasks completion management – identifying tasks, assigning them to various users, and tracking their completion.
- Contract expiry
Contract lifecycle management systems will notify users about significant milestones and contract expiry dates. It can also automate and simplify the renewal process if needed.
CLM software is designed to improve every step of the contract lifecycle management process flow. It will take a significant workload from your legal department, freeing them for more sophisticated tasks. If your lawyer must physically deliver contracts to vendors after every edit you make, imagine how much time and money you could save if the entire process were digital? Instead of drawing up a new vendor contract each time, your legal employee can create several universal drafts that can be customized as needed.
Even though the legal department benefits greatly from CLM software, old habits often die hard, and some employees might resist the change. Here are the general rules to determine ROI when adopting contract management software in your legal department.
How to Measure the ROI of Contract Management Software?
To evaluate the potential Return on Investment (ROI) of contract management for a company, you should look into:
- Supplier compliance
CLM software allows organizations to cut expenses by providing data that helps ensure suppliers comply with the agreements.
- Internal compliance
Contract lifecycle management systems help prevent errors and avoid legal mistakes by offering templates and allowing them to unify data.
- Better sourcing
CLM’s reports can help achieve more effective negotiations. By gathering existing data and analyzing it, the legal department can make wiser decisions when it comes to agreement termination or renewal.
- Workflow efficiency
Contract management software can enhance productivity by automating processes, thoroughly gathering and analyzing data, and decreasing the time needed to create contracts.
To receive maximum benefit from your CLM software, you should calculate potential savings in each area and establish an ROI number based on the outcome of such an analysis. Once the contract management software is implemented, the system will provide the required data to continuously monitor your ROI.
It’s important to know that ROI will highly depend on the CLM tool’s functionality. Let’s explore the essential features contract management software should have.
Top 8 Features to Look for in a Contract Management Solution
Here are the basics you should opt for when looking for a CLM solution.
Workflows ensure all contract lifecycle management steps are being followed and enable you to track each agreement throughout the pre- and post-execution phase.
The contract lifecycle management service should have centralized storage for all documents to avoid any data mix-up, such as creating multiple versions of the same document or confusing the contract lifecycle stages.
Look for systems that allow customizable security roles. It’s much safer to build security around your organizational structure and restrict users based on their responsibility for certain contracts.
Dynamic template editor
As we’ve mentioned, creating templates is very important for risk mitigation as it collects valuable universal data, which helps eliminate all major mistakes.
The highly-functional contract life cycle management systems must streamline the negotiation and review process. When it comes to the system’s features, it should offer extensive tracking and sharing capabilities, automated communication and collaboration features like comments and chatting, as well as the ability to share documents within and outside the system.
Once your documents are stored in one cloud database, make sure you can find the documents you need easily. You should also consider systems that offer document scanning and indexing, besides the basic search by the document’s name.
Analytics and reporting
By automating the contract signing process, you receive better sourcing of valuable data, which is crucial for business decisions. CLM’s analytics and reporting features can be your best advisor when deciding whether to extend or terminate a certain partnership.
Notifications help you get instant updates on processes. Since you’re adopting the contract management software to make the contract signing process faster and more efficient, be sure you’re always on top of what’s going on with your partnerships.
These are simply the basics. We believe every organization has its specific needs to consider when adopting contract management software. That’s why, at AXDRAFT, we customize the software based on each organization’s needs.
After reviewing the general concept revealing what is contract lifecycle management software and its benefits, we have narrowed down a list of questions to ask when choosing the one:
- Does the system offer cloud storage?
- Can you customize contract data based on user needs?
- Does the system provide accurate notifications technology?
- Can you search for the document based on the information in the document? Can you search for the documents by name?
- Does the system provide extensive analytics and reporting systems?
- Can the provider customize the CLM system according to your needs and specific requests?
Are there other questions you have regarding contract management automation? We will be glad to help you!