Find out how to effectively manage your contracts throughout their lifecycle and the best practices you should follow.
Contract lifecycle management is an essential process among businesses of all sizes. During the creation of a contract, it will go through many departments in an organisation. A clear contract lifecycle management process will improve communication between departments. Summize's Contract Lifecycle Management process looks at:
• Why it's important to manage a contract's lifecycle
• The CLM system
• Contract lifecycle management benefits and best practices
• How contract lifecycle management can be improved using software
CLM is a solution that covers the lifespan of a contract. The management process begins during the proposal of a contract. It will finish when the contract is up for renewal.
Businesses have many moving parts, covering processes from sales to recruitment. How efficiently they execute these will determine the success of the company.
Contract lifecycle management is a six step system that includes:
• Renewal or expiry
The lifecycle of a contract plays a vital role in businesses that leverage contracts.
Contracts involve many different stages that need to be managed throughout the contract lifecycle. Each stage must be managed effectively and efficiently for the contract to achieve its maximum value.
Demand for contract lifecycle management solutions has been steadily rising as businesses seek to implement an end-to-end contract lifecycle solution to gain control over their contract portfolio. Contract lifecycle management works by addressing key issues including time, cost, and quality by automating and streamlining the pre-existing stages of the contract lifecycle.
Every business will sign contracts. Contracts are the legal agreements that define the relationship, ensuring each party meets the requirements of the contract. Although a crucial aspect for a company, contracts are often time-consuming, complicated, and challenging to keep track of.
Contract lifecycle management is a process to track and manage each stage of a contract. To check the performance and compliance through every stage.
Contract lifecycle management allows a business to reduce the risk of a contract, while ensuring compliance with regulations and encouraging performance auditing. You can expect to see significant cost savings and increased efficiency as a result.
Contract lifecycle management starts with a new contract. It ends when the purpose of the contract is complete. Or with the option for renewal. The number of stages in the process will depend on each business, its size and existing processes.
To make this easier, we’ve broken down the seven most common steps you may come across in a standard contract.
The first stage of contract lifecycle management is the request for a contract. In this step, goals are set for what the contract should achieve. The length of the contract, fees, and each parties’ obligations are the main factors.
The second stage requires that the involved parties draft a contract. The second stage is also known as contract writing. Terms, conditions, clauses, dates, and other key information are the main pieces during the second stage.
The negotiation process starts when both businesses begin reviewing the contract draft. The negotiation stage is usually the longest. Each business will go back and forth on terms to reach the best agreement.
For the approval stage, the parties will review and then sign the contract to show their approval.
After signing the contract, it is enforceable. Both companies must meet the terms of the contract.
The auditing stage is one of the most crucial for the successful delivery of the contract. Reviewing a contract ensures the terms are still relevant. It also provides an opportunity to spot any potential compliance obligations.
The final stage of the process is the expiry of the contract. Each company can renegotiate a new contract or end the existing agreement. Regular contract audits, allow a business to identify areas for improvement. You can also spot opportunities when it comes to expiring contracts
Additionally, two more steps can be added to the contract lifecycle management process. The nine-step contract lifecycle management process helps reduce contractual costs such as leakages and maximises revenue through planning and management.
Obligations management is when a contract is reviewed to ensure that the involved parties are meeting their agreed obligations.
When a contract is signed, the involved parties are making a legally enforceable agreement to comply with their agreed obligations. Contract obligations can be a challenge for any business, and as a result, those that are not effectively managed can prove costly and can even result in a breach of contract.
The Contract Amendments stage is a crucial step of the contract lifecycle management process. This stage of the process allows amendments to be made to the agreement once inefficiencies have been spotted, to ensure that the involved parties can continue to meet their obligations.
Nowadays, businesses need to create and manage vast amounts of contracts. Written contracts account for 60 - 80% of all business-to-business (B2B) deals according to the Institute of Supply Management. For example, a Fortune 1000 company can have 20,000 to 40,000 live contracts at any given point.
Contracts present both opportunities and risks. Effective contract lifecycle management of such vast agreements is crucial but also challenging. Ignoring the process creates significant financial and operational risks for businesses.
We have included some of the key benefits to CLM for a standard contract.
• Minimize risk and ensure compliance
Compliance is a major issue in contracts, even more so in larger agreements involving many parties. Contract lifecycle management provides better visibility into active contracts. It ensures constant compliance and decreases litigations from incomplete obligations.
• Build better relationships
A contract defines the smallest set of obligations that parties need to reach. Being a business, fulfilling and exceeding expectations increases financial returns. A contract lifecycle management plan will enhance contract performance, leading to repeat and increased business opportunities.
• Reduce costs
An efficient process can reduce labour costs and time. Effective contract management will save time and money by avoiding non-compliance.
Unmanaged contracts often fail to achieve their intended goals and can be costly. For example, businesses lose up to 9.2% of their revenue due to poor contract management. Contract lifecycle management (CLM) creates a process to identify poor contract management, turning lost revenue into opportunity.
An effective contract lifecycle management process can be confusing. To improve your contract lifecycle management process, we would recommend three simple things:
• Automate and digitise
Tracking and managing your contract portfolio is a challenge for any business. Digitising and automating the process saves businesses time and money. Our software helps clients digitise contracts by using our contract creation tools.
• Run regular reports
Conducting regular contract analysis is crucial. Many businesses do not see contracts again after the signature or during the termination or renewal stage of contract management. When businesses fail to meet the agreed obligations, the risk of termination and litigation from the involved parties increases and companies can make better decisions by conducting regular contract analysis. It will help spot inefficiencies and ensure their obligations.
Businesses are under increasing pressure to deliver value with minimal contract risk, costs, and maximum performance. Contract KPIs refer to the performance indicator within the agreement. They allow parties to identify and isolate the underperforming contracts. For a contract to achieve the maximum value and achieve its KPIs, it is crucial that regular contract reviews are undertaken.
KPIs allow you to isolate contracts that are underperforming. Contract lifecycle management performance KPIs should be specific, measurable, attainable, relevant, and timely. The top three common KPIs for contract management success are contract efficiency, contract effectiveness and contract risk.
Contract effectiveness as a KPI allows you to stay productive and ahead of contractual obligations and opportunities, ensuring that you meet key milestones. Contract effectiveness KPIs may include:
• Contract utilisation percentage
• The number of contracts
• Renewal rate
All contacts come with associated risks. Contract risk as a KPI allows you to minimise the risk and remain compliant. Contract risk KPIs may include:
• Standard clause variance
• The number of delayed contract approvals
• The number of contracts expiring without renewals
A key metric for contract performance is contract efficiency, which is concerned with the time spent on a contract, including:
• Contract review times
• Negotiation times
• Overall time spent on a contract
Contract Lifecycle Management software is used to improve and accelerate existing contractual processes while analysing the contract over the full lifecycle. The software allows legal teams to effectively manage their contract portfolio at each stage of a contract lifecycle, with minimal manual intervention.
Businesses are turning to contract lifecycle management (CLM) solutions to modernise legal workflows as they seek to gain full control over the entire contract management process.
For legal teams and the wider business to see the benefits of CLM software, it must integrate with existing tools and workflows. Summize creates a frictionless experience by doing just that. As the first native Microsoft Teams & Slack solution, Summize integrates contract processes into these familiar tools to maximise adoption and reduce friction.
Artificial intelligence has long been said to be the silver bullet for contract processes, but the truth is that it should not be used alone without the knowledge brought with legal experience. The Summize Contract Analysis Engine works by combining the best of humans and AI technology to digitalise existing legal processes, without requiring a change of working habits. Legal teams can accelerate their contract reviews by 85% to produce instant summaries and areas of concern are instantly red-flagged.
Missed deadlines and key contractual dates can prove costly to any business. With the Summize Contract Analysis Engine, automatically extract key dates and add them to the calendar, with built-in email reminders.
Every business will have a different portfolio of contracts the next. Summize allows legal teams to generate custom clauses for even the most unique contract. Your Playbook is incorporated into Microsoft Word with all the edits recorded. Creating a single source of truth that is always up to date and compliant.
For most businesses, contracts are just a time-consuming burden. They are unaware of the benefits they can bring. Still, with some businesses having up to 40,000 active contracts, it can be a complex and daunting task. Contract lifecycle management is crucial in any industry if you want to stand out.
Good contract lifecycle management will reduce financial and operational risk to the business. Increasing profits, improving supplier relationships, and creating cost savings of up to 50%. In contrast, poor contract lifecycle management exposes the business to lost revenue with the potential to face legal action for non-compliance.
Legal teams everywhere are turning to digital contracting solutions like Summize, aiming to automate their contract lifecycle management process. Summize allows teams to instantly create summaries, identify key dates and important clauses
Legal teams everywhere are turning to digital contracting solutions like Summize. Aiming to automate their contract lifecycle management process. Summize allows teams to instantly create summaries, identify key dates and important clauses. You can display each contract’s contract lifecycle management stage within our dashboard. The tool is efficient and accurate for any legal team looking to save time, money, and resources, allowing your team to focus on the future of the business.
And that’s Summize’s Ultimate Guide to Contract Lifecycle Management!
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