Contract Lifecycle Management Guide: Simple Steps To Follow

Contract lifecycle management (CLM) 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. The Summize guide to Contract Lifecycle Management looks at:

• Contract lifecycle management and why it’s important

• The CLS process

• Contract lifecycle management benefits and best practices

• How contract lifecycle management can be improved using software

What is Contract Lifecycle Management?

Businesses have many moving parts, covering processes from sales to recruitment. How they execute these will determine the success of the company.

Contract lifecycle management is the process a contract follows. The lifecycle of a contract includes:

• Drafting

• Reviewing

• Negotiation

• Signing

• Execution

• Renewal or expiry

The lifecycle of a contract is a continuous process with many stages. It plays a vital role in businesses that leverage contracts.

The management process begins during the proposal of a contract. It will finish when the contract is up for renewal. Contract lifecycle management is a model that covers the lifespan of a contract

Why is Contract Lifecycle Management Important?

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.

What is the CLM Process?

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.

1. Requesting

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.

2. Authoring

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.

3. Negotiating

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.

4. Approving

For the approval stage, the parties will review and then sign the contract to show their approval.

5. Executing

After signing the contract, it is enforceable. Both companies must meet the terms of the contract.

6. Auditing

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.

7. Expiry & renewal

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

What are the Benefits of Effective Contract Lifecycle Management?

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 the 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.

What are Best Practices for Contract Lifecycle Management?

Unmanaged contracts will often fail to achieve their intended goals. Businesses lose up to 9.2% of their revenue due to poor contract management. Contract lifecycle management 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.

• Set KPIs

KPIs allow you to isolate contracts that are underperforming. To meet your original goal, we would recommend conducting regular contract reviews. In the contract review, you can track the performance of the contract.

• 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. Companies can make better decisions by conducting regular contract analyses. It will help spot inefficiencies and ensure their obligations.

How Can Legal Tech Improve the Contract Lifecycle Management Process?

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 from 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!

Did you find it useful? Or perhaps there’s something we missed? Get in touch with us at [email protected] to let us know.

About the author

Summize

Summize makes contract review, creation, and management easy for legal teams, wherever they work. Made up of tech experts and legal professionals, Summize is here to provide you with the best and most up to date information.
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