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Businesses in this tech-savvy, highly globalized and connected world are increasingly embracing remote working, collaborating with customers, contractors, and partnering with vendors. As a result, the volume of contracts being created, shared, and managed has grown exponentially.
With so many moving parts, it is common for companies and individuals to lose track of these binding legal agreements.
When contracts are mismanaged or overlooked, it can lead to legal disputes, strained relationships, loss of revenue and reputation as well as avoidable legal expenses. This is where Contract Lifecycle Management (CLM) comes in. It provides an organized, streamlined approach to managing contracts, enhancing transparency, minimizing financial and legal risks, and fostering positive relationships among all parties involved.
In this comprehensive guide, we will delve into the world of CLM, equipping you with the knowledge and tools needed to take control of your contracts and unlock their full potential.
Let’s dive right in!
What is contract lifecycle management?
Contract Lifecycle Management (CLM) is a thorough approach to managing contracts of organizations from initiation to renewal, and to termination and post-termination. It involves tracking and managing every aspect of a contract, including performance, compliance, and other success factors throughout the entire lifecycle of the document.
Having a robust CLM process allows businesses to maintain a disciplined approach to managing agreements, mitigate risks, remain compliant, and enhance the likelihood that critical contracts perform as intended.
The contract lifecycle management process begins when a contract is proposed or requested and continues throughout the delivery of the promised goods or services until the contract is either renewed or expires. Businesses even need to continue maintaining records related to contracts even after they expire based on their business, legal, and regulatory requirements.
To streamline and add structure to the various stages of the contract lifecycle, businesses often adopt CLM systems, typically in the form of contract management software. These solutions can automate and streamline contract processes during key stages (which we will discuss in the next section of the blog).
So what does a contract management system do? It allows businesses to create a common language, core templates, unified terms, define processes, enforce governance, and repeatable, consistent conditions, saving time and reducing errors for employees, customers, investors, joint venture partners and hundreds of other business cases. They are designed to:
- Implement governance standards.
- Offer greater visibility into risk management.
- Offer greater visibility and control on spend.
- Standardize processes for efficiency and predictability across operations.
- Delight customers, employees, vendors, and related parties with better experiences.
- Reduce costs of creating and managing contracts.
We’ll discuss more about contract management software and how they help, but before we get into that, let’s get sorted with the stages in the contract lifecycle management process.
Contract management statistics you should know about
Before we discuss contract lifecycle management, let’s look at some of the statistics that highlight its importance:
- On average, contract process consumes 18% of the selling cycle.
- Research has found that 32% of professionals spend more than 30 minutes to locate the final version of a contract.
- It takes an average of 3.4 weeks to get a contract approved, but using CLM software reduces that time by an average of 82% (Forrester and Aberdeen).
- Digitization of contract management offers the potential to improve compliance by 55% (Forrester and Aberdeen).
- Organizations lose an average of 9.2% revenue due to poor contract management.
- A business can save up to 2% of its annual costs by utilizing contract management (PWC).
- Organizations using a contract intelligence platform can optimize contract creation steps, seeing 40% reduction in contract administrative costs.
- The same organizations have also noticed a 70% improvement in overall contracting cycle time.
- The global contract lifecycle management market is expected to be worth US$ 845 million in 2023, rising to approximately US$ 3 billion by 2032.
What are the different stages in the contract lifecycle management process?
It’s essential to comprehensively understand the different CLM stages to streamline contract management, promote clear communication, and fulfill contractual obligations.
Here are nine stages of the contract lifecycle management process:
1. Contract request or initiation
The contract lifecycle management process begins with the contract request initiation stage, where one party expresses the need for a contract or agreement. This request usually includes essential information such as the scope, required goods or services, key performance indicators, contract’s critical dates, commercial considerations, and few other legal details.
This information is then input into the contract lifecycle management tool.
A well-structured contract request helps lay the foundation for a solid and effective contract, reducing the risk of miscommunication or misunderstanding between the involved parties.
2. Drafting, reviewing, and redlining
Once the contract request is received, a contract document is created, encompassing all relevant clauses, terms, and conditions that define the relationship between the parties and the scope of the contract.
This document is typically drafted using pre-approved templates and legal clauses to ensure consistency and compliance with organizational standards.
The contract then undergoes multiple revisions, reviews, and redlining processes to align the parties’ expectations and mitigate potential risks.
Traditionally, the collaboration at this stage goes through multiple rounds of revision made over emails. This asynchronous method often results in losing context, missing revisions, and takes a lot longer to conclude. On the flip side, contract management systems help you easily collaborate on-the-document.
This is a collaborative stage and efficient systems and processes ensure transparency and helps achieve a mutually beneficial agreement.
3. Approval and legal review
After the contract document has been drafted and revised, it is submitted for approval to relevant internal or external stakeholders, such as department heads, legal teams, or executives with required authority.
This stage ensures that the contract complies with the organization’s policies, processes, and legal & governance requirements.
The approval process may involve multiple iterations to address concerns and suggestions raised by the reviewers, further refining the contract, and mitigating potential risks.
4. Contract execution and signing
Once the contract has been thoroughly reviewed and approved by all relevant parties, it is ready for execution.
The first step in this stage is getting the contract signed by the authorized representatives of each party, either electronically or manually, indicating their commitment to the terms and conditions outlined in the agreement.
This stage marks the formalization of the contractual relationship and establishes a legally binding obligation between the involved parties.
5. Repository storage and management
The executed contract is securely stored in a centralized contract repository, making it easily accessible for future reference, analysis, and management.
In this stage, the contractual metadata and documents are indexed, ensuring that the contract information can be quickly retrieved and analyzed.
Proper storage and organization of contracts in a repository allow businesses or individuals to efficiently manage the contract and mitigate risk by monitoring and managing their contractual obligations effectively.
6. Records management and compliance
This stage focuses on maintaining accurate and secure records of all contractual documents, ensuring that they comply with internal policies and external regulations.
And how are the accuracy and security of contracts maintained? By implementing proper retention policies, data protection measures, and backup procedures, safeguarding critical contract information against potential loss or unauthorized access.
Efficient records management helps organizations demonstrate compliance with legal requirements and ensures you don’t face any non-compliance penalties.
7. Search and retrieval functionality
An effective contract lifecycle management software allows users to easily perform quick searches, apply filters, and retrieve relevant contract documents.
This stage enhances productivity by enabling stakeholders to access and review contracts, track progress, and identify potential risks or opportunities on time. By facilitating easy search and retrieval of contract information, organizations can make informed decisions and respond proactively to changing contractual needs.
8. Monitoring user activity and reporting
Throughout the contract lifecycle, user activity is logged, and the contract metadata and documents are indexed for easy retrieval and analysis. This stage enables organizations to generate custom reports that provide insights into contract performance, compliance, and risk factors. These reports can help organizations identify trends, inefficiencies, and potential areas for improvement, driving more effective contract management and strategic decision-making.
9. Contract renewal, amendments, and termination
As the contract approaches its expiration date, the involved parties must decide whether to renew, amend, or terminate the agreement. In this stage, you evaluate the contract’s performance, assessing whether the contractual relationship remains beneficial. Based on the performance, you can determine the appropriate course of action — whether to renew the contract or not.
Why is contract lifecycle management important?
Contract Lifecycle Management (CLM) is one of the most critical components of modern business operations, offering numerous advantages to organizations prioritizing efficient and effective contract management.
In this section, we will dive deeper into the benefits of CLM and discuss how it can significantly improve business performance.
1. Improved efficiency
When you understand and streamline the stages of the contract lifecycle, you can enhance the overall efficiency of the contract management process. This results in faster contract negotiations, informed decision making, a reduction in errors, customer delight, and more timely execution of contracts. And because of this, your business can capitalize on new opportunities quickly, ensuring the maximum value is derived from each contract.
2. Increased revenue
Contract lifecycle management allows businesses to identify opportunities for revenue growth by analyzing contract performance and renegotiating terms where necessary.
Effective contract management also enables organizations to reduce revenue leakage caused by missed deadlines, penalties, or unfulfilled obligations.
By keeping a close eye on contract performance and taking corrective actions when needed, you can ensure that you maximize your business revenue potential.
3. Effective risk & compliance management
CLM plays a crucial role in mitigating risks and ensuring compliance with internal processes and governance standards, industry regulations and legal requirements.
By proactively monitoring contract obligations and changes in regulations, you can address potential issues before they escalate, reducing the likelihood of costly disputes or non-compliance penalties.
Contract lifecycle management also helps businesses maintain an audit trail, which is essential for demonstrating compliance during an audit or investigation.
Implementing CLM best practices (which we cover later in the blog) promotes transparency in the contract management process, fostering trust and collaboration among stakeholders.
Clear communication and access to contract-related information ensure that all parties know their obligations and progress toward meeting them. When the level of transparency is high, it encourages accountability and enables informed decision-making based on real-time data.
5. Stronger relationships
An effective CLM process fosters more robust relationships between organizations and their clients, vendors, and partners. By delivering on contractual obligations and maintaining open lines of communication, businesses can build trust and long-lasting partnerships that contribute to mutual success.
6. Improved contract performance
Contract lifecycle management enables organizations to monitor the performance of their contracts continuously. How? By tracking key performance indicators (KPIs), analyzing contract terms and conditions, and evaluating contracts’ financial and operational impact on the business.
With this information at their disposal, businesses can make data-driven decisions to optimize contract performance and achieve better outcomes.
7. Centralized contract repository
One of the key aspects of CLM is the creation of a centralized contract repository, which makes it easier for stakeholders to access and review contracts. It creates a single source of truth.
The centralization of the contract repository eliminates the risk of lost or misplaced contracts. It ensures that the most up-to-date version of a contract is always available for reference. This also helps you avoid miscommunication caused by outdated or missing contract information.
18 best practices for contract lifecycle management
Mastering contract lifecycle management is essential for businesses that want to thrive in today’s competitive business landscape.
By implementing the best practices of CLM, you can streamline processes, reduce risks, and foster strong relationships with your partners, vendors, and customers.
Here are some contract lifecycle management best practices to transform your contract management game!
1. Assemble a cross-functional team
To ensure success in implementing and managing a contract lifecycle management (CLM) system, form a team comprising members from various departments, including legal, finance, procurement, and IT. This diverse team brings together different perspectives and expertise, ensuring a comprehensive understanding of the organization’s contract management needs and facilitating smoother communication and collaboration throughout the CLM process.
2. Map existing processes and envision the future state
Before implementing a contract management system, thoroughly analyze your organization’s current contract management processes. Identify inefficiencies and areas for improvement and use this information to design an ideal future state.
This vision will guide the CLM implementation, enabling you to tailor the system to address your organization’s specific pain points and goals.
3. Define success metrics and KPIs
Establish clear success metrics and key performance indicators (KPIs) to measure the effectiveness of your CLM implementation.
Some of the KPIs you can consider are contract generation time, negotiation speed, revenue growth, and risk reduction. These metrics will help demonstrate the return on investment (ROI) and support ongoing improvement efforts.
4. Start small and scale up
Begin with a limited scope by focusing on one or two high-impact, low-risk use cases. This approach enables your organization to become familiar with the CLM system and achieve initial success. As you gain experience and confidence, expand the CLM to additional use cases, gradually scaling up its adoption and impact.
5. Secure executive buy-in
Obtaining support from executive leadership is crucial for the success of your CLM implementation. Present a clear, quantifiable business case to demonstrate the value and potential ROI of the system. Executive buy-in helps ensure adequate budget allocation, resources, and organizational commitment to the project.
6. Implement strong governance and role-based access control
Establish a governance framework for managing and overseeing the CLM system. This framework should include role-based access control, ensuring that employees have appropriate access and permissions based on their responsibilities.
A well-defined governance structure helps maintain security, compliance, and organizational alignment.
7. Prioritize training and user empowerment
You can develop a comprehensive training program to teach employees how to use the CLM system effectively. The training and resources should be role-specific, empowering users to harness the full potential of the system in their daily work. By giving them continuous learning opportunities and a supportive environment, you can enhance adoption and proficiency.
8. Migrate and digitize existing contracts
To maximize the benefits of your contract lifecycle management process, migrate and digitize both active and inactive contracts. This process makes historical contract data easily accessible and searchable, helping to inform future contract negotiations and compliance efforts.
9. Encourage seamless collaboration
Another best practice is to use the power of CLM systems to facilitate seamless collaboration among team members, both within and outside your organization.
Cloud-based contract management software can enable real-time editing, version control, and access management, ensuring that contract negotiations and drafting are efficient and transparent.
10. Monitor and optimize the system continuously
After implementing the CLM system, you should continuously monitor its performance, identify opportunities for improvement, and make necessary adjustments. Regular testing, analysis, and optimization will help your organization derive maximum value from the system and ensure its ongoing effectiveness.
11. Develop a central contract repository
Creating a central contract repository is essential for an effective contract lifecycle management process. This approach ensures that all contracts and related documents are stored in a single, accessible location.
A well-organized repository simplifies contract retrieval, facilitates collaboration, and enhances visibility across the organization. To make it even more effective, consider implementing a tagging and categorization system to help users quickly locate relevant contracts.
12. Standardize contract templates and clause libraries
To improve efficiency and reduce the risk of errors, develop standardized contract templates and clause libraries for common contract types.
Having templates and libraries streamlines contract drafting, minimizes inconsistencies, and helps ensure compliance with legal requirements and company policies.
You should also encourage your team to use these resources as a starting point for contract creation and customization, maintaining a consistent structure and language.
13. Automate routine tasks and workflows
Automated processes save a truckload of time for businesses while also reducing the potential for human error and enhancing overall efficiency.
You should leverage the CLM system to automate routine tasks and workflows, freeing valuable time for your team to focus on strategic activities. For example, you can automate contract generation, approval routing, notifications, and reminders.
14. Implement regular contract audits
You should consider conducting periodic contract audits to verify compliance with internal policies and external regulations.
Let’s say you manage contracts for a mid-sized software development company that partners with various subcontractors for specific projects. You have not been conducting regular contract audits, assuming that the initial contract negotiation and signing processes are sufficient to maintain compliance and minimize risk.
Over time, one of your subcontractors consistently delivers work late, causing delays in project completion and negatively impacting your company’s reputation. This becomes a serious issue when you have many such subcontractors.
But had you been conducting regular contract audits, you could have identified these issues early on, addressed them proactively, and potentially saved your company from significant financial losses and reputational damage.
In addition to scheduled audits, consider implementing a risk-based approach that prioritizes high-risk contracts for more frequent or in-depth reviews.
15. Track and manage contract milestones
Effective contract management requires monitoring key milestones, such as renewal dates, performance targets, and payment schedules.
Implement a system for tracking and monitoring these milestones and set up alerts and notifications to remind stakeholders of upcoming deadlines.
With proactive milestone management, you can ensure timely actions and prevents missed opportunities or costly oversights.
16. Foster open communication and feedback
Encourage open communication and feedback among team members and stakeholders involved in the CLM process. Regularly solicit input on potential improvements, challenges, and successes. This feedback loop helps create a culture of continuous improvement and ensures that your CLM system remains responsive to the evolving needs of your organization.
17. Benchmark and compare the performance
Periodically benchmark your contract lifecycle management performance against industry standards and competitors to identify areas for improvement and best practices to adopt.
Comparing your organization’s performance to others can reveal potential gaps and drive strategic decision-making.
You can consider participating in industry events, webinars, and forums to stay informed about emerging trends and developments in contract management.
18. Integrate CLM with other systems
To enhance efficiency and streamline processes, integrate your contract management software with other critical business systems, such as enterprise resource planning (ERP), customer relationship management (CRM), and procurement platforms.
The integration enables seamless data flow and reduces the need for manual data entry, resulting in more accurate and up-to-date information across your organization.
Trends in contract lifecycle management
As the business landscape evolves, contract management continues to transform, incorporating innovations and technology to deliver added value.
Let’s dive into some key trends that are shaping the future of contract management.
1. Emphasizing collaboration
Contracts are the foundation of relationships between multiple parties. And fostering collaboration and maintaining a mutual commitment to success throughout the contract term is essential.
Early stakeholder engagement, open communication, and ongoing involvement can significantly enhance contract outcomes and strengthen partnerships.
2. Harnessing automation and data analysis
The rise of cloud-based solutions has brought advanced analysis tools to the forefront, enabling organizations to evaluate supplier performance, monitor regulatory compliance, and manage contract calendars more efficiently.
Moreover, artificial intelligence (AI) can analyze historical contracts, recognize patterns, and proactively suggest appropriate clauses and standard definitions for new or updated contracts. This automation streamlines the contract management process while minimizing human error.
3. Managing risk and governance
Risk and governance are two of the most critical aspects of contract management. This encompasses legal and policy compliance, conducting fair transactions, and maintaining transparency during contract negotiations.
Neglecting these practices can lead to severe consequences, including financial losses and damage to your reputation.
You need to implement automation for these critical processes to reduce the risk of document loss, data errors, and improve overall efficiency.
4. Adopting contract lifecycle management software
Businesses now understand the actual value of implementing CLM software to manage their contracts more effectively. These systems centralized contract management, automate routine tasks, and offer real-time insights to enhance decision-making. As a result, businesses can optimize their contract management processes and respond more effectively to changing market conditions.
5. Integration with blockchain technology
Blockchain technology is gaining traction as a potential solution for improving contract management transparency, traceability, and security.
Smart contracts, powered by blockchain, can automatically enforce contract terms and execute transactions without intermediaries.
This development promises to revolutionize how contracts are managed, reducing the risk of fraud and human error.
6. Embracing remote work and digital contracting
The rise of remote work and digital contracting has accelerated the adoption of electronic signatures and virtual contract negotiation tools. This shift enables organizations to manage contracts more efficiently, reduce reliance on paper documents, and streamline collaboration among remote teams.
What is contract lifecycle management software?
As we discussed earlier, adopting contract management software is more than just a passing trend; it’s an essential tool that will make contract management smoother and more efficient for years to come. Let’s dive deep into the contract management system and why it has become so crucial in today’s business world.
Contract Management software is a digital platform designed to help businesses manage contracts through their entire life cycle.
Contrary to popular belief, it’s different from document signing (electronic signature or eSign) software, which only deals with collecting digital signatures.
CLM software offers a comprehensive solution that streamlines contract management processes and extracts valuable insights from your agreements and works with your other business software and systems to automate your business operations.
Imagine contract lifecycle management software as your versatile kitchen gadget that simplifies complex tasks while saving you time and effort. It’s an all-in-one solution for handling the different aspects of contract management.
Over time, many tech companies have tried to address the challenges of contract management from various perspectives. Some focused on specific parts of the contract life cycle or certain functions, while others specialized in a particular type of contracts or related legal fields.
Nowadays, there is an abundance of contract management software. However, only a few offers a comprehensive solution, and no one offers all native features and functionalities encompassing the entire lifecycle of a contract or an agreement. Most are add-ons to the existing software and there are very few that truly simplifies every step of the contract management process — and not to toot one’s own horn, but DocuX is one of them.
This is because contract management presents an array of technological, operational, and legal obstacles that require a comprehensive approach. DocuX is purpose-built for hosting the entire lifecycle of a contract or agreement and for that matter, any document on a single platform with all native functionalities. You do not need any other software or tool other than DocuX to manage your contracts, agreements, and documents.
Modern contract lifecycle management software understands that contracts have a far-reaching impact on businesses, both before they’re signed and long after they’re filed away.
For instance, consider the issue of renewals: how can a company effectively manage its contractual obligations if it isn’t aware of when agreements are due for renewal? Cutting-edge CLM tools tackle this problem by incorporating features like automated notifications and pre-execution capabilities, such as contract drafting and authoring.
However, many traditional contract management solutions focus primarily on post-execution database management, meaning storage. These solutions may lack the necessary tools to create contracts efficiently or streamline repetitive tasks.
The future of contract management systems lies in merging contract process automation with effective agreement management. The result is an all-encompassing digital contracting platform that enables legal professionals to concentrate on deal negotiations, collaboration, risk identification, and strategic partnership within their organizations.
Long story short, CLM software is an indispensable, multi-functional tool designed to manage contracts throughout their entire life cycle. By embracing a robust and efficient CLM system, you can save time, mitigate risks, and optimize your contract management processes.
What is the right time to invest in a contract management lifecycle (CLM) software?
Imagine having to manage contracts during your growth journey and losing revenue to mismanagement.
That’s why we recommend investing in CLM software as early as possible. Apart from the ease of creation and management, this will also ensure that all your contracts – no matter how big or small they are, remain in one place.
Traditionally, companies considered a CLM system as an investment for later owing to the high costs of software and the learning curve each came with. But with so many advancements in the ecosystem and technologies, platforms like DocuX have made CLM systems reachable for everyone.
The platform is not just easy to get started with, but also has no learning curve – you can get started with creating, collaborating, and closing contracts with e-signatures right away, at less than half the spend you’re making right now!
Create your next contract with DocuX and see for yourself.
Sealing the Deal: A Smooth Contract Journey with DocuX
Managing vendor contracts can be a complex and time-consuming process. But with DocuX, an all-in-one platform, you can streamline your contract management and improve efficiency.
DocuX allows you to easily create dynamic sales contracts, quotes and proposals, vendor contracts, purchase orders, NDAs, and all procurement documents, either by using templates or starting from scratch.
The platform’s real-time collaboration capabilities ensure that your team stays in sync, and the Workspace feature eliminates the need for clunky email threads or external storage solutions.