Contract Life Cycle Management (CLM) simply means effectively managing contracts or agreements and relationship between entities by properly planning all the contract management stages resulting in reducing, eliminating or mitigating financial, legal and procurement risks.
Critical Stages in Contract Lifecycle Management (CLM)
Following section explains about the #9 stages and best practices of Contract Lifecycle Management process.
Contract Life Cycle Management starts with the Contracts Requesting process where one party requests for or initiates the contracting process and subsequently uses that information for drafting or authoring the contract document.This is usually the first step in Contract Life cycle Management.
Information on what the contract should contain and critical dates such as contract start date,end date and any milestones.
- Contract Request information is saved in the CLM Software System and visible in the contract management dashboard for further CLM stages.
- Audit Trails.
In the Contract Authoring or Drafting stage , contract or agreement document is created or generated using CMx which includes all clauses, terms and conditions. It is usually in this stage Contract Approvers and Signing parties are determined and approver and signing details are captured in the contract document.
Contract Request Information.
- Contract or Agreement Document, usually in Microsoft Word or Adobe PDF format saved in the document management solution.
Agreement document prepared in previous step is submitted to internal or external approvers and then once they approve the document to proceed further, Contractual document moves to the next step in the CLM life cycle.
- Contract Approvals from designated stake holders.
Contract document which is approved is sent to respective parties for signature either online or using manual process.
Contract Document with no signature.
- Contract Document with electronic signatures from all contracting parties.
Once the contract document is signed it is stored permanently in a easy to retrieve agreement database. Both contractual meta data and documents are indexed and saved for future reference.
Contract Document with Signature.
- Contract Document saved in document repository for future reference and accessible through contract API.
This stage enables complete control of all critical business documents through reliable storage of records with backups and retention policy enforcement policies providing confidence that your critical records are in secure for global information management with high compliance.
Agreements, Contractual Documents.
- Compliance enforcement by safe storage in a Records Management System.
This stage enables business users to quickly search , apply filters and retrieve relevant documents from the contract system.
Contract Repository tagged with relevant keywords for easy search and retrieval.
- Search results of contract repository with relevant documents.
Every stage captures user activity logs and the contract meta data and documents are properly indexed for easy retrieval. This stage ensures business users can quickly and efficiently retrieve and mine contract data and produce in depth reports.
Contract Repository containing agreements.
- Custom Reports.
Once the contract reaches its end date , it must be renewed to stay in active status. If the contract is not renewed on time it could cause financial risk for the parties involved in the contract.
Contract Document with a recent expiry date.
- Contract Document renewed to a later expiry date.
What benefits and Return On Investment can be expected by using Contract Management Software?
Contracts play a critical role in any multi-party transaction, documenting terms such as critical dates, pricing, external/internal party information and signatories. Losing visibility to your critical contracts and terms can lead to missed deadlines , penalties, overpayment for services, timely payments collection from external vendors and much more which has a high impact on your business operation and profit margin. It is essential for companies across all industries to better manage their contracts at an enterprise level. However, far too often multiple business units within an organization have their own drives/directories or other data stores where contracts are kept. This can lead to confusion, disarray and potential loss of critical information. Forward-thinking companies will smartly centralize their repositories with an efficient contract system that creates a single source of record for their enterprise-wide contracting needs and CMx perfectly follows this vision.
Only some companies worldwide manage their contracts and contract processes really good. It helps to maintain order and efficiency to this critical area. Contract System ranges from very simple database that allow companies to search and find their contracts and track information (such as contract expiration dates and deadlines) to contract lifecycle management (CLM) systems that attempt to automate the entire contract lifecycle, from the initial contract request through contract creation, signing, filing, and post-contract reporting. Some systems are primarily intended to support the procurement function, and others the sales contracting function, but increasingly these systems are being designed to handle all types of contracts.
While a simple contract database or contract repository may be enough for companies with only a small number of contracts to deal with, more fully featured CLM systems add significant features and functions to help manage what, for many companies, is an increasingly complex and critical area.
With more contract solutions being offered as a cloud hosted service (SaaS), the advantages of CLM systems are increasingly available even to smaller companies and law departments.
An integrated system that applies business rules to manage contracts of the enterprise on a worldwide basis, from request through negotiation to filing in a central repository, and that allows people and systems within the organization to access, analyze, and act on contract-related information to improve efficiency, consistency, reporting, and control.
Contract Management Solution Optimization Advantages
- Make contracting process efficient and improve contract cycle time
- Improve efficiency of contract lifecycle management process
- Eliminate overhead associated with contracts
- Getting Contracts Done effectively is important to streamline consistency of contracts and contract processes across the organization for due diligence and pro-actively managing risks
- Risk Mitigation and better control of risk and revenue recognition issues
- Improve enterprise-wide visibility of contracts and related information – team members have access to the information they need
- Eliminate redundant entry of information
- Increased Vendor and Supplier Compliance
- Increased Legal Compliance by using common contract drafting tool and consistent terms and conditions.
- Legal compliance by effectively using Contract Management System can provide quick Return On Investment for your company. All of the project teams can use the same system for managing contract documents and metadata in one place , standardizing and optimizing Contract Management tasks and activities.
- Increased Spend Optimization.
- Most importantly , life of contract managers , procurement managers , legal professional becomes easy since all are collaborating using the same tool throughout the organization.