Mastering CONTRACT LIFECYCLE MANAGEMENT
Effective CLM streamlines your business processes, improves efficiency, and minimizes risks but how do you manage your contracts without a lawyer on speed-dial?
Contracts are at the base of any business relationship or economic process, and every contract goes through fundamental stages; negotiation, creation, review, execution, compliance, and renewals/archival altogether called the Contract’s lifecycle. To maximize operational and financial performance while minimizing risk these processes are collectively called Contract Lifecycle Management.
This article delves into the intricacies of CLM, exploring its benefits, stages, best practices, and the latest tools to optimize your CLM processes.
Contract Lifecycle Management is the systematic management of contracts throughout their lifecycle; from initiation through execution, performance, and renewal/expiry. It also stores contracts, strengthens compliance with legal and organizational standards, and automates the lifecycle processes.
The stages of a contract include;
Ideation/Negotiation: This is the birthing place of a contract because the idea of collaborating is born and terms are fairly negotiated.
Contract Creation: A draft, made from scratch or templates, of the negotiated terms or parties’ intent is created.
Review: the draft is examined to represent the parties’ intent properly before a final contract is produced
Execution: the contract is complete and signed by all parties in the presence of witnesses. Other legal steps (like registrations, signature by a Notary public, etc.) can be taken to strengthen its legality and enforceability
Compliance: the contract is active and parties are expected to fulfill or enjoy their rights and responsibilities as agreed to and contained in the executed contracts
Termination/Expiration: the contract expires when all contractual responsibilities are fulfilled, and the contract is terminated at the parties’ desire.
Renewals: most contracts contain the option to renew and are renewed if mutually beneficial
Archival: after a contract is complete, barring any renewals, breaches, or legal issues, it is analyzed and then stored or archived to be used in the future as a reference or template.
Mistakes in any contract stage can jeopardize the contract and the parties’ relationship. Therefore, the importance of effective contract lifecycle management cannot be over-emphasized.
The Importance of Effective CLM
Enhanced Efficiency: Automating contract processes reduces the time and effort needed to manage contracts, allowing teams to focus on strategic activities.
Risk Mitigation: Properly managed contracts ensure compliance with legal and regulatory requirements, reducing the risk of disputes and penalties.
Cost Savings: Automated alerts and tracking prevent missed deadlines and renewals, saving on potential penalties and lost opportunities.
Improved Visibility: Centralized contract management provides transparency and easy access to contract data, facilitating better decision-making.
Stronger Relationships: Efficient contract management fosters trust and stronger relationships with clients, vendors, and partners.
Effective CLM is furthered by technology which transformed CLM from hard-copy documents and manual practices to digital workstreams with automated reminders, standardized processes, and centralized (cloud) storage. Businesses provide their staff with ongoing training on the use of technology for CLM to ensure the best practices and uniformity.
Here's an interesting story about this flowchart…
Before it existed, a client asked me for a standard CLM outline to incorporate into their ERP software. Due to either a lack of clear communication on his part or a misunderstanding on mine, we couldn't meet his needs despite multiple attempts. Eventually, the project stalled. I then enlisted the help of my brother, a web developer, and together we created this flowchart.
Leading CLM Tools
DocuSign CLM: Known for its robust e-signature capabilities, it also offers comprehensive features for managing the entire contract lifecycle.
Agiloft: A highly customizable CLM tool that automates contract creation, approval, and management.
Icertis: A powerful CLM platform that uses AI to improve contract compliance and optimize performance.
Conga Contracts: Offers a full suite of tools for contract creation, negotiation, and management, integrating seamlessly with Salesforce.
ContractWorks: Focuses on simplicity and ease of use, ideal for small to mid-sized businesses looking for efficient contract management.
Conclusion
Contract Lifecycle Management is an essential aspect of modern business operations. By streamlining processes, automating routine tasks, and ensuring compliance, CLM enhances efficiency, reduces risks, and fosters stronger business relationships. Implementing best practices and utilizing advanced CLM tools can transform your contract management approach, leading to significant operational and financial benefits. Embrace the power of effective CLM and take your business processes to the next level.
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