Contract Management vs Contract Lifecycle management… They sound so similar that people easily mix them up, like Slovakia and Slovenia; conscious and conscience; apples and oranges (on second thought, maybe not that last one). But while contract management and contract lifecycle management seem synonymous at first glance, they’re not interchangeable.
If you’re looking for ways to improve your organization’s legal workflows, it’s important to know the difference. Otherwise, you risk being stuck with old-fashioned practices that won’t be of much help. That’s why we’re here. We’ll take you through some of the ins and outs of each so that you’re as familiar with them as the back of your hand.
To choose the best possible approach to managing your document workflow, let’s take a peek at their definitions. This will help you choose the best option to control costs, oversee payments, monitor revenue, improve productivity, and reduce error.
Contract management is the process of managing contracts from their creation, through their execution by the chosen party, and to the eventual termination of the contract. We can say that contract management refers to the large scope of processes that encompass all contract-related operations. It can be manual, automated, or hybrid, where some processes are done manually and some are automated.
Contract Lifecycle Management
CLM is a forward-thinking approach to managing contracts. Contract operations are separated into defined stages, and the scope of actions needed at each stage is streamlined to achieve max efficiency. This approach often requires the use of technology to tailor actions across each stage of the contract lifecycle.
Although this term is sometimes used to describe the same process, in reality, it’s just a part of contract management. Contract administration relates to everything you do before a contract is signed and executed.
Drawbacks of Old-School Contract Management
There are three approaches to contract management:
- Manual (all processes are done manually)
- Hybrid (some processes are manual and some are automated)
- Automated (the whole process is automated)
Doing something manually is an old-fashioned approach, whether you’re doing it all manually or just some. This could be as simple as having a mountain of documents on your desk, and with two minutes remaining before a critical meeting, you have to rapidly sift through them so you can find it.
Automation speeds up processes and eliminates unnecessary involvement of other people. But when we’re talking about contract management, there are other drawbacks aside from speed.
Contract management helps control funds, reduce risks, and stay on top of performance. However, there are many spots where bottlenecks can form, causing spikes in inefficiency.
First off, managing contracts manually may result in the loss of valuable information. If your internal teams don’t know the terms of contracts by heart (which is rarely the case) and can’t quickly check them, how can you be sure that you’re meeting the obligations they contain? In addition, information can’t be quickly reused for new contracts, forcing you to spend a lot of time entering data you already had.
How can you find the data you need among numerous documents if you put the contract away once it’s executed?
A lack of knowledge causes poor planning, misunderstandings, missed deadlines, unnecessary costs, and uncalled-for contract prolongation.
Here’s a quick math problem: If a lawyer’s average hourly rate is $90, how much money does your company lose annually on mere copying and pasting data across legal documents?
On top of that, if contract templates aren’t unified, they might not satisfy government requirements and company policies.
Here are some drawbacks to tracking contracts only from point A to point B:
- Lack of visibility. There are a lot of things you may need information about: dates, terms, costs, addendums, deliverables, party data, counterparty data, and due diligence. And that’s just the tip of the iceberg. With so many elements, it’s easy to lose track and discover that critical info got lost in the shuffle, making it excruciating to sift through and find.
- Chance of missing contract renewals and obligations. When dates are set and contracts are executed, you still need to know what’s next. Otherwise, you may not be able to meet your obligations or terminate/renew a contract when needed.
- Data is not retrieved. Retrieving data is much faster than re-entering it each time you’re preparing a contract. It helps drastically reduce the amount of time spent on document drafting.
- Gaps in data. It’s impossible to remember all the nuances, but there are always some special terms and offers for special clients or partners. You should be able to check the information ASAP.
- Skyrocketing costs. Not only do you waste your lawyer’s time on low-value busywork, but you also risk becoming non-compliant if there’s an error in the contract’s final version, or if you’re using an outdated template.
Even if you do only some of these processes manually, it’s already outdated. Most common non-automated approaches are used for document exchange and storage. Let’s consider the drawbacks to old-school ways.
Where’s the Analytics?
When contracts are managed manually, there’s practically no performance analysis. And if there’s no analytics, there’s no chance to improve performance or find opportunities to increase the bottom line. If anything, you run the risk of burning money without even realizing it.
That’s because if data isn’t being pulled automatically, it’s hard to quickly check how well a contract’s performing. By having easy access to executed contracts, you can avoid wasting time searching for and collecting information that you need to analyze. Instead, all your time and effort can focus on monitoring and boosting performance.
Here’s a simple rule to live and work by: If you don’t control the whole lifecycle, you don’t control the workflow.
Document Exchange: Spreadsheets, spreadsheets everywhere!
In manual contract management, companies use programs such as MS Word to create a contract. Document exchange is often made using spreadsheets and emails. This may seem like the first step to increasing visibility and taking control over your contracts, but it’s not as good as it may sound.
The first problem with sharing contracts via spreadsheets and emails is the lack of security. You might send a letter or give access to the wrong person, or your email could be hacked or compromised by a phishing letter. If cybercriminals break into your organization’s system, they can communicate as if they were an employee, get the information they need, request money transfers to their account, or change data in your documents. Only one phishing message is enough to let them spy on your communication. On average, companies receive almost 1,200 such letters each month.
Inefficiency is another problem of manual exchange. It appears due to the following reasons:
- Lack of collaboration. Spreadsheets need to be shared among various departments. Before approval, users must be sure they have the latest version. And if few people have access to edit a document, it’s even harder to communicate and inform all parts of the process about changes.
- Human error. 88% of all spreadsheets have “significant” errors in them. Processing large amounts of complex data manually makes it easy to enter information wrong. Mistakes may lead to a waste of time, as well as losses in reputation and money.
- Decision-making. You can’t rely on data when errors are a common thing. You have to spend time double-checking. And when the document reaches decision-makers, they may not have enough time to carefully study it before signing.
- No real-time updates. There may be issues with data validity and actual versions when you share spreadsheets from team to team. Business decisions made using documents that possibly contain mistakes may be a source of additional stress for managers. You can’t fully confirm the correctness of calculations. And if you can’t trust the answers, you may have to go back to the beginning.
- Lost or deleted data. When contracts are saved in different folders they are not easy to be found. On top of that, if the spreadsheet owner did not think about backup, it can be lost forever with a slight technical issue.
- Delays or lags in approval. If your counterparties fail to see your email on time, or if they completely ignore your email, you’re forced to spend time pinging them on other channels. The nightmare truly begins if they ignore you on those channels as well.
- Manual redlining. Contracts are rarely perfect and approved the first time. Usually, you have to adjust clauses, update terms, and even modify massive blocks of text. Unless you’re a fast, error-free typer, manual redlining is an accident or error just waiting to happen.
Keeping track of contracts, diligent reviews, updates, and data accuracy are crucial for business efficiency. The problem is spreadsheets are not designed to support the whole lifecycle of a contract, nor do they create a comfortable environment for real-time contract redlining and approval.
Without centralized storage, documents are stored across numerous folders on different computers or even on paper in file cabinets. Having tons of contracts in different forms (paper and electronic) scattered in different locations makes it hard, if not outright impossible, to track, manage, and analyze files. Decentralized ways of storing contracts create several problems:
- Risk of breaking deadlines and obligations. It’s impossible to keep all contract information in mind. Without scheduled reminders, you won’t be able to track due dates. And without a convenient search function, you can’t even check them. The more documents stored, the longer it takes to search for the information you need. Just imagine looking for one contract among spreadsheets and drawers!
- Too many copies. The opposite problem to not finding a contract is finding too many of them. When documents are shared and redlined, the same document may be copied and stored many times and then appear in every type of search. When this happens, a time-consuming search becomes a time-consuming comparison of versions.
- Lack of security. Personal computers and emails are at risk of unauthorized access and spreadsheets. Even password-protected files may not meet sufficiently robust security regulations.
- Lack of accessibility. If everything is stored as a physical copy, how can you quickly access the contract if it’s stored across the country, if not across the world?
In addition to colleagues, your clients could suffer as well. It’s difficult to provide proper customer service when colleagues aren’t able to find information quickly and can’t be sure they’re using correct data.
Contraсt Management vs CLM
CLM uses AI-based technology to control the entire lifecycle of a company’s contracts. Implementing contract management software is the fastest way to improve contract management and remove roadblocks that delay contract authoring, negotiations, approvals, and renewals. Thus contract execution is faster, and real-time visibility allows for easier contract management while decreasing risks and lowering costs.
CLM processes often address automated document drafting, streamlined contract redlining in real time, transparent approval flows, and analytics. Here are some of the ways a CLM system helps manage contracts:
- Automated document drafting. Drafting documents cause a lot of time to get spent unnecessarily. And with ready-to-use templates, it doesn’t need to be this way. Since CLM can automate the entire process, all that stands in the way between nothing and a full, mistake-free draft are a couple questions. Simply answer the questions so that the system knows what to include or omit, and presto! The document is ready for review.
- Centralized storage. Contract management software provides one central location to store all of your organization’s contracts, ensuring that all necessary information is easy to find and retrieve as every user knows exactly where to find the contract information they need. This prevents multiple versions or copies from floating around and causing confusion. And a good CLM platform also enables you to easily migrate legacy contracts, so that all contracts stay in one place.
- Scheduled reminders. In addition to real-time collaboration, CLM allows users to schedule and send automated alerts and notifications, removing the need for manual reminders and unnecessary emails. This decreases the risk of unnecessary renewals and missed deadlines.
- Streamlined contract redlining. Our collaborative editor allows multiple people to provide changes, add comments, and send sections for review simultaneously in real time. You can also see what changes or comments stakeholders make without needing to constantly compare documents with previous versions.
- Transparent approval flows. Thanks to transparent, conditional approval flows, you’ll be able to collect approvals for a document from the right people at the right time. You won’t be forced to chase down each person once it’s their turn to review, and you won’t have to double-check whether a certain contract even falls within a person’s area of responsibility. Instead, the system automatically matches the contract to the necessary approval flow, then it forwards the contract to the next person it needs approval from.
- Analytics. Since all the data you need is under one roof, CLM software can quickly collect data about a contract’s or team’s performance, obligations, and other criteria. This drastically speeds up the reporting process so that more time can be spent getting non-compliant counterparties back into compliance.
Not to mention, contract lifecycle management saves a huge amount of time. Fast searches, no manual tracking of important dates, no manual data input, and self-service document creation allow you to forget about routine. And as a bonus, happier employees 🙂
If you want to gain control over your contracts, a manual approach to contract management is not the best option. Even after the contract is terminated, nothing’s over. It still holds valuable information that can be analyzed.
Contract lifecycle management facilitates workflows and streamlines document turnaround by providing centralized storage and easy access to information. Implementing a CLM system is a strategic step that can help you manage your contracts better and gain the best possible value.
AXDRAFT is happy to help you integrate our contract lifecycle management system and guide you through its functionality. Book a time in our calendar to quickly discuss your existing workflows, possible improvements, and potential ROI 😉 Or if you’re short on time, try our instant demo!
Сontract management – contract management is a large scope of processes that encompass all contract-related operations, from their creation to execution.
Contract lifecycle management – contract lifecycle management is a strategic and forward-thinking approach to managing contracts that tailors and streamlines actions across each stage of the contract lifecycle.
Contract management covers all contract-related operations. Contract administration is the work done before a contract is signed and executed.
Contract management is the process of managing contracts, from their initiation to their termination or renewal. CM helps track key dates, provide critical performance metrics, and meet obligations. Most contracts have specific details that are very important to the operations of your business. It may include price changes, penalties, auto-renewal clauses, mandatory minimum commits, etc. Also, different contracts have different degrees of risk. The CM process searches for and finds appropriate measures to mitigate those risks.
Procurement management is the process of managing procurement-related processes, purchases, and supplies. It includes negotiating the terms and conditions with suppliers, vendors, or partners. To put it simply, Procurement management is the process of overseeing all processes involved in acquiring the products, materials, goods, and services needed for business operations.