Contract Lifecycle Management Best Practices to Adopt in 2023
Every business needs an effective contract lifecycle management strategy in place to stay competitive and comply with a legal obligation. Without contract management lifecycle best practices, your business might have to face legal and financial issues.
From the creation of an agreement to its expiry, each stage of CLM presents unique challenges that must be proactively managed to drive success. So why not revolutionize your CLM practices this year by implementing some of the robust strategies?
In this article, we’ll share some contract lifecycle management best practices that can benefit your firm in countless ways.
Current Trends & Challenges in Contract Lifecycle Management
During contract lifecycle management, businesses must closely monitor every step, from initial drafting to renewal or termination. Organizations that manually manage the contract may face several challenges, such as slow turnaround time, regulatory compliance issues, poor visibility into contract terms, lengthy signing processes, lack of appropriate access, inconsistent legal clauses, etc.
However, several trends have been introduced recently to streamline the CLM for businesses of all sizes. Let’s briefly overview them:
● Automated contract drafting with pre-approved templates
● E-signatures for seamless execution of contracts
● Version control software for better visibility into the negotiation process
● Smart contract analysis for audits
● AI software for preventing legal complications
● Centralized storage of all the agreements
Why is it Important to Adopt Contract Management Lifecycle Best Practices?
Contractual affairs in any business setup are crucial in determining their productivity, reputation, and expenses. Hence, it’s essential to implement the best strategies to ensure the successful execution of each CLM stage, be its drafting, negotiation, approval, execution, monitoring, renewal, or termination.
Here are some of the benefits you can avail of by following the contract lifecycle management best practices:
● Eliminating the likelihood of costly disputes
● Improved productivity with fewer chances for errors
● Protection of legal and monetary interests
● Enhanced compliance rates, mitigating risks
What are Contract Lifecycle Management Best Practices
According to 50% of organizations, inefficient contract management can lead to lost opportunities. However, with CLM best practices in place, it’s not complex to avoid such losses. Let’s describe each step below.
1. Contract Creation & Drafting Best Practices
By implementing the following practices, organizations can draft contracts with higher compliance rates by minimizing the chances of errors:
Use pre-built templates: Gone are the days when your legal team had a long checklist to follow while drafting new contracts. Now they can utilize templates with a standard structure having pre-approved legal clauses. The best part is that these are modifiable, so the team members will still have the scope to change the terms according to your business’s specific requirements.
Ensure the presence of all necessary components: The structure of the contract should be complete, having all the required sections. You can cross-check this by confirming that the contracts consist of the following vital aspects:
● Outline of mutual obligations
● Stakeholders of the intellectual property
● Ways for resolving disputes, if they arise
● Interests and responsibilities of both the parties
● Consequences that a party may face in case of breach
● Time and method of contract termination, & actions to be taken after termination
2. Contract Negotiation & Approval Best Practices
After drafting, the most significant period of contract lifecycle management starts when the other party approves the agreement. But before that, they might want to negotiate the terms and conditions. Here are a few contract lifecycle management best practices to excel at this stage:
Know your priorities: You must first identify which factors in the agreement are most crucial for your business. This makes it easier to recognize the potential trade-offs, allowing you to make informed decisions about concessions you are willing to make.
Automate negotiations: During negotiations, the other party redlines the phrases they want to be amended in a document. The frequent exchange of files can make it challenging to keep track of the changes, maximizing the chances for errors.
But the good news is that you can easily automate this process using any latest platform that allows both parties to collaborate on a single document in real time.
3. Contract Execution & Implementation Best Practices
Once both sides agree on terms and conditions, the process of contractual execution begins. You can follow the below tips to complete it smoothly:
Adopt electrical signatures: Dependency on wet ink or scanned signatures can slow down the execution of contracts as both ways involve a long process. But now, organizations can easily counter this issue by transforming their approach toward e-signatures.
Not only does it speed up the signing process, but it can also save money on printing and mailing costs associated with physical documents.
Ensure proper storage: Certainly, your business will have several ongoing contracts. To keep proper track of each, it’s essential to archive them in a centralized repository for easy accessibility in the future. This digital storage makes indexing and searching the contracts easier, while your legal team can also perform audits conveniently.
4. Contract Monitoring and Compliance Best Practices
Constant monitoring of contracts is crucial to mitigate risks and ensure 100% regulatory compliance. For instance, if you have incorporated a dashboard for tracking all the paperwork, many things can get simpler for your business.
Through dashboards, you can easily monitor compliance requirements in real-time, store all the relevant contractual data in a centralized location, and access customized reports based on several parameters.
Here’s how you can give your best:
Automate data tracking: Organizations leveraging automation technology like KPIs to track progress can get a prominent edge over those who don’t. Through this, organizations can track several parameters to evaluate the success rate of their CLM. Some of which include:
● Length of time between authoring and signing
● Number of contracts and their renewal rates
● Annualized contract value
● Contractual obligation performance and compliance rate
Take prompt actions: If you identify a single sign of non-compliance or missed milestones by either your side or the client, then don’t delay addressing the issue even by a minute.
In this scenario, your foremost responsibility is to access the accountable side and put risk-mitigating strategies in place to minimize the damage. Moreover, the communication should be clear to avoid any complex conflicts.
5. Contract Renewal and Termination Best Practices
Some of the CLM best practices you can adopt for streamlining the renewal and termination of your organization’s contracts are as follows:
Never wait till the last minute: It’s highly recommended to start reviewing the contracts at least a month or two before their expiry approaches. This way, your legal team members will have enough time to adequately address the terms so they can figure out optimized renewal strategies.
You can streamline this process with automated software that sends pre-alerts before a contract expires.
Know which contracts to terminate: You must understand that not each expired contract needs to be renewed. When your company is in its growing stage, it’s better to terminate the agreements that don’t promise a good return on investment.
Good contract management software offers accurate data on this metric, allowing you to make informed decisions without any regrets in the future.
As technology evolves, new trends are introduced to streamline CLM. With these, it has become easier than ever for businesses to avoid legal and financial challenges associated with inefficient management of agreements.
From using templates for creating contracts to streamlining their negotiation, execution, monitoring, and renewal through automated software, contract lifecycle management best practices can help you stay ahead of your competitors.