Contracts touch every part of the business, but mostly, contract workflows go unnoticed by employees. However, if a deadline is missed or a deal is delayed (or, even worse, lost) due to poor contract processes, everyone across the business will feel it.
Poor contract management can lead your business to severe operational and financial risk. It can even cost companies 9.2% of their annual revenue (World Commerce & Contracting). That’s why businesses are turning to contract lifecycle management solutions, and choosing the best CLM software
is also a fundamental step.CLM software
can significantly simplify and improve contract processes across your business using automation, providing many benefits,
including mitigated risk, increased efficiency, shorter contract cycles, and faster revenue generation.
Whether you are a CLM expert or a complete beginner, this article will help you determine CLM best practices
to ensure success.
What is CLM?
Contract lifecycle management (CLM) is the process of managing a contract throughout its lifecycle. It begins during the pre-signature stage and finishes during post-signature and is typically a digital process.
CLM is an end-to-end solution that digitises and automates the contract throughout every stage of its lifecycle. It brings companywide benefits, allowing businesses to improve their overall efficiency, enhance cross-department collaboration, mitigate risk, and accelerate their path to revenue.
Companies everywhere are turning to CLM. It has become a critical competency within businesses requiring a cross-functional approach, allowing them to unlock cost savings and enhance business value.
The CLM Process
CLM covers every stage of the contract's lifecycle. It begins during the contract proposal stage and finishes when it is up for renewal. The number of individual steps in the process will vary for each business depending on its size and existing methods.
For ease, we have identified the seven most common stages of CLM for a standard contract:
The first stage of CLM begins with the request for a new contract. During this stage, the parties set criteria for the contract based on what it needs to achieve, including duration, fees, T&Cs and each party's obligations.
The second stage of the process is the drafting of the contract. It is also known as contract creation, writing or authoring. During this stage, essential information such as dates and T&Cs are established.
The third stage of the process begins when drafting is complete, and involved parties begin reviewing the draft contract. The negotiation stage is typically the longest during the lifecycle. It allows the parties to go back and forth on terms to reach the best possible agreement for their business.
The approval stage is when the parties review and sign the contract, showing their approval of the agreement.
Now that the parties have signed the contract, it is legally enforceable. The involved parties must now act to ensure they meet the agreed terms.
The audit stage is crucial during the lifecycle to ensure the contract will be successfully delivered. This stage allows the parties to review the terms and ensure that they are still relevant.
7. Expiry / Renewal
The final stage of the process is when the contract is due to expire. This stage allows the parties to renegotiate the contract or end the existing agreement. By conducting regular contract audits, businesses can identify inefficiencies and areas for improvement.
CLM Best Practice
For businesses that are looking to improve their CLM process and ensure that their team follow best practices, we recommend the following ten things:
Tracking and managing your contracts can be difficult, especially when they are all at different lifecycle stages. So, it’s essential to automate low-value work such as contract creation.
Additionally, many businesses don’t allow commercial users to self-serve on their contracts, which can quickly cause bottlenecks and cycle delays, impacting revenue generation. Digitising and automating this routine work with a CLM solution saves businesses time and money, freeing up stretched resources.
The Summize Legal Front door is a great way to do this, as it allows businesses to digitise their contracts and automate workflows, enabling contract creation in under 2 minutes.
CLM is designed to address contract process inefficiencies. But businesses should map out their current processes and establish a clear understanding of the current state to highlight areas for improvement before implementation. Using this process, companies can better align their use case with vendors and determine their ideal future processes.
Reporting on activities is crucial to spotting opportunities and mistakes. Many businesses fall into the trap of not keeping up with their signed contracts until they’re due for renewal or expiry. But this can dramatically increase business risk.
When the obligations and T&Cs of an agreement are not met, the risk of termination and even litigation increases dramatically. Regular contract analysis allows organisations to make better-informed decisions by spotting inefficiencies and meeting obligations.
Users don’t need another all-in-one platform like many traditional CLM solutions. They often require extensive training and take users away from their work. Therefore, for successful user adoption, native integrations within already-established collaboration tools are crucial to user adoption and CLM success.
Allowing users to carry out contractual tasks in their existing tech stack provides faster and more efficient contracting. That’s why Summize uses Teams, Slack and Word as its user interface, creating a modern approach to the CLM experience that makes contracts accessible to the entire enterprise.
5. Central Repository
Contracts continually move and change over time, and teams must keep up to date with their content. They should be stored in one place and tracked – two things manual contract management processes can’t provide.
Plus, not having a comprehensive knowledge of the business’ contract portfolio, combined with the usual contractual requests from other departments, causes backlogs. Not only can this impact sales processes and slow down deal cycles, but it can also introduce risk and put unnecessary pressure on an overstretched legal team.
A central repository enables legal teams to manage all their contracts effectively, joining the dots across the business. Summize’s contract repository provides instant summaries for every contract and highlights the risk across all your portfolio to unlock better results and actionable insights.
6. Standardise Contract Authoring
Manually creating a contract is time-consuming and prone to human error. By standardising the contract authoring process, businesses can ensure consistency and compliance while accelerating the contract lifecycle. Pre-approved templates and clauses allow for risk mitigation and compliance, allowing enterprises to quickly and seamlessly create contracts without legal intervention.
Summize uses Teams or Slack to help users create contracts in under 2 minutes without changing their working methods. The contextual Q&A provides real-time responses, building the document without legal intervention from the library of pre-approved templates and content.
7. AI-Powered Reviews
With cross-departmental stakeholders, dedicated time is needed from the legal team to review contracts. But if completed manually, this creates bottlenecks in the sales cycle, impacting revenue generation and increasing legal risk.
Therefore, Artificial Intelligence (AI) is a fast and effective starting point for standardising your approach to contract negotiation. AI-powered reviews allow legal teams to seamlessly review and effectively analyse contracts and agreements, speeding up cycles. With accurate contract summaries, legal teams can mitigate risk in minutes.
8. Train the Users
CLM has rapidly expanded beyond its initial focus on contract authoring and legal department improvement. Many solutions now connect to core applications, integrate with business-critical systems and inform essential decisions.
For commercial users, day one will likely be their first time seeing a CLM solution. Therefore, businesses must plan to train their commercial users effectively, and a solution should be selected that encourages business-wide adoption.
9. Arrange Existing Contracts
CLM is for all agreements, new and old. But businesses must do some housework on their existing contracts before uploading them. Your CLM solution is only as good as the content that you have stored inside it.
10. Analyse Performance
A CLM solution holds vast quantities of data on your contracts. This data provides a window into the real-time visibility of your contract portfolio.
By regularly analysing the performance of the data, businesses can track contract response times, negotiation cycles, request type, status, owner and more. This allows teams to create custom reports to evaluate performance and KPIs and optimise processes.
How AI Complements CLM Best Practice
In-house legal departments have historically been slower to adopt automation and technology, but the changes to how we work have transformed the modern workplace. Automation allows teams to execute weeks’ worth of work in minutes. For years, people thought this technology would replace humans in the workplace, but instead, it’s helping redefine them.
Legal teams across the globe are turning to digital contracting solutions like Summize to automate their contract lifecycle management process. Summize’s CLM software allows legal teams to instantly create summaries and identify critical dates, clauses and risks while empowering commercial users to self-serve on contract creation – eliminating bottlenecks and cycle delays.
Summize clients see multiple benefits, including:
- Faster revenue generation
- Shorter contract cycles
- Improved collaboration
- Enhanced workflows
- Smarter business decision making