What is Contract Lifecycle Management (CLM)?
Contract lifecycle management is a process in order to help organize the creation, execution and management of contract agreements and legal documents.
Contracts are an essential part of all business and commerce and managing these documents and their various legal obligations can be overwhelming – so, it is crucial to have a set system to help manage these contracts successfully.
What is a Contract Lifecycle Management System?
A contract lifecycle management system is meant to automate and streamline the entire process of contracts, from creation to signing to ongoing management of obligations.
It is essential to have a structured contract lifecycle management system that is unique to each business that works best depending on the industry, company size, amount of contracts, etc.
Naturally, organizations and businesses must deal with a great number of contracts during the day to day operations. In fact, modern contracts are not only increasing in complexity (due to the introduction of technology and related licensing) but we are also seeing an increase in the number of contracts being signed.
As you can guess, a business with no contract lifecycle management system can very quickly become unorganized in dealing with their contracts and may find they waste precious time and labour hours dealing with these contracts. The better the contract management lifecycle process in place, the smoother everything runs and the better experience for everyone involved.
If contracts aren’t managed properly, businesses also run the risk of failing to keep to their contractual obligations; considering the sheer volume of contracts that most businesses must be involved in – each with their own set of legal obligations – it can be almost impossible to keep track of these legal responsibilities, and failure to do so can result in legal trouble, monetary fines and excess manual labour.
Any and all businesses that use legal contracts to operate (whether they be business-to-business or business-to-consumer) can benefit from contract lifecycle management services.
Contract Lifecycle Management Process: Stages & Challenges
Now that you understand the basics of contract lifecycle management, we can go over the various stages of the contract lifecycle.
There are many different phases of each contract – no matter the size or importance of any particular document, they must all go through each stage in order to be completed properly.
The stages of the contract lifecycle management process include:
The start of every contract involves the actual request.
This is the phase where involved parties gather all the relevant information and data they need in order to create a contract that works for both sides.
The request stage is arguably one of the most important stages of the contract lifecycle and can take some time depending on who is involved.
This is the stage where the contract actually gets written.
Both parties put their terms into writing and ‘solidify’ their clauses and relevant information relating to their contractual obligations.
The negotiation stages are where both parties continue to negotiate specific contract parameters – this is the stage that directly precedes final approval.
Negotiations can be very quick or prolonged – it entirely depends on the method of negotiation, the involved parties, the scale of the contract, how many people are involved, etc.
Use of contract lifecycle management software can drastically reduce the amount of time spent in the negotiation phase.
Once both sides have agreed on the various terms, clauses and dates relating to the particular contract, it can now be approved.
Department heads, executives, and ‘higher-ups’ may need to get involved at this phase of the contract to ensure everything is as it needs to be.
Once the contract gets the approval from the relevant departments and/or personnel, the contract can then be signed.
In the signature phase, the contract is signed by whoever needs to sign it in order to become official (who signs the contract is unique to each business).
If contract lifecycle management software is used, the signature stage can be done electronically via the internet which drastically reduces the amount of time this stage takes.
Each involved party and personnel will have their own set of responsibilities and obligations pertaining to the specific contract.
Compliance means the involved parties and personnel all keep to their various obligations.
Without a proper system or contract lifecycle management software, compliance can be difficult to keep track of and can result in legal ramifications, late fees, bottlenecks, and other business hazards.
After a document is expired (or when it is nearing expiration) a contract must be renewed and renegotiated.
Contract lifecycle management software makes it easy for businesses to keep track of expiry dates and upcoming renewals.
Contract Lifecycle Management Challenges
There are many challenges stemming from contract lifecycle management.
- Excess manual hours
- Visibility issues
- Difficult to understand legal language
- Inefficient process
- Difficulty managing change
There are many problems that come from poor contract lifecycle management systems – many of these can be fixed with contract lifecycle management services and software.
Importance of Contract Lifecycle Management Process
Contracts are essential to the success of businesses, and without a solid foundation of knowledge about the contract lifecycle, there can be many consequences, legal and otherwise.
Contract management software such as Parley Pro helps streamline & automate the traditional contract lifecycle management process – this saves time, reduces headache, and creates a better experience for all involved parties.