Regardless of its size, every organization needs to handle multiple contracts simultaneously, with each contract falling under a different stage of the contract lifecycle. Contract lifecycle management software has come as a handy tool to manage all contacts as it helps reduce risks, improves productivity, and maximizes a contract’s value.
In this blog, we will discuss contract lifestyle management and how it can be used to improve your contract processes.
What is Contract Lifecycle Management?
In simple terms, Contract Lifecycle Management is an effective tool that helps manage contracts or agreements and relationships between entities. It does so by planning all the contract management stages properly, resulting in reducing, eliminating, or mitigating financial, legal, and procurement risks.
Contract Lifecycle Management is used by organizations to manage multiple contracts – from proposal through delivery. It starts right from the pre-authoring stage and continues all the way through until expiration or renewal
The solution, a collection of tools, processes, and methodologies, can help improve quality management for the entire lifecycle of contracts, including origination, pre-qualification, contract negotiation, and drafting right through implementation.
Now that we have a brief knowledge of what Contract Lifecycle Management is, let’s talk in detail about its process.
Contract lifecycle management processes
The following is an overview of the contract lifecycle management process:
- Contract creation – The Contract Lifecycle Management process starts with a business requesting or initiating the contractual proposal to another party and then using that information to draft or author the contract document. Arguably, this stage sets the tone for whether a contract will undergo efficient processing or witness delays.
- Pre-qualification – Once the proposal has been submitted and reviewed by appropriate parties, potential suppliers may be pre-qualified based on their qualifications and past performance. This phase allows businesses to narrow their search for a provider to ensure that the suppliers meet or exceed the buyer’s expectations regarding quality, delivery, and cost.
- Contract negotiation – Once suppliers have been pre-qualified, it’s time for negotiation, where both parties negotiate the parameters jotted down during the previous stage. The aim is to come to an agreement that meets the requirements of both parties while minimizing cost/investments for both sides. Conditions, as agreed by both parties, give a clear understanding of the expectations of all involved parties.
- Drafting and approval – Once both parties have reached a mutual consensus, it’s time to review the contract. Guidelines are set to ensure compliance standards, contract obligations, milestones, and special terms of a contract are met. It’s essential to build an accessible and up-to-date record of changes to create a healthy contract approval process. After completing this step, the contract can be signed and brought into action.
How can businesses benefit from Contract Lifecycle Management?
A well-executed CLM process can offer multiple benefits to businesses. Some of them include the following:
- Increased efficiency – With a lot of the contract administration being automated with the help of software that can manage the entire contract lifecycle, the process becomes more efficient for all those involved in the process. A well-executed CLM process can help streamline the procurement process, thus saving time and resources for both businesses and suppliers.
- Improved quality control – By tracking all contractual requirements – right from proposal to the actual delivery – businesses can ensure that quality standards are met throughout the entire process.
- Increased project success rate – A successful contract lifecycle management process helps reduce the risk of project failure by ensuring that all parties are on the same page from start to finish.
- Reduced costs – A well-executed CLM process can help reduce the costs associated with procurement, such as bribes and kickbacks.
- Increased profitability – By minimizing waste and ensuring a smooth contractual process, businesses can maximize profits while expanding operations.
Who can benefit from Contract Lifecycle Management or CLM?
Any business that relies on contracts to carry out its day-to-day operations can benefit from a well-executed CLM process. This includes businesses in the public, private, and NGO sectors. The benefits of CLM are not just limited to procurement processes – a good CLM strategy can be used in almost every department.
To start with, think about those departments that will benefit the most from automation or more efficient operational procedures. Below mentioned are a few common use cases for CLM software:
- Sales: Make your business move at pace with your sales agreements. This is why sales teams spanning industries are revitalizing their agreement processes to become more agile, efficient, and customer-focused. During the sales process, contracts define every major milestone—from negotiating and signing to billing and renewal. In such situations, ineffective contract management and storage methods can add to the cost. An effective contract management solution not just streamlines the sales process and minimizes operational costs; it also enhances customer experience, driving greater ROI and greater client retention.
- Legal: Legal review and approval are the most important aspect of any contract’s journey. It is also one of the most time-intensive steps traditionally. According to a Forrester study conducted in 2020, 50% of legal professionals reported inefficiencies in their contract management process resulting from manual data transfer. Around 62% reported having to rework contracts as a result of errors regularly. The longer it takes to get an agreement finalized and out the door, the less business finds its way in. A transition from manual to digital contract management helps eliminate errors, ensures compliance, and hastens time to value.
- Procurement: There’s much pressure on procurement to move quickly and maximize value as it is the primary link between an organization and its vendors. Procurement teams that are dependent on manual or paper-based contract management procedures bring inefficiencies and unforeseen costs, thus restricting the team’s ability to add value to your firm.
Contract Lifecycle Management helps streamline the entire procurement process – from identifying needs and gaps to contract negotiations and execution. It automates various steps in the procurement cycle, allowing suppliers to focus on their core competencies. CLM makes it easier for all classes, including buyers and sellers, to continuously evaluate contracts throughout their lifecycle.
Contract Lifecycle Management presents a plethora of features that empower organizations to manage contracts more efficiently, mitigate risk, draft documents quickly, receive alerts, oversee compliance, track costs, sign documents with eSignatures, and decrease contract management costs due to lost productivity stemming from outdated contract administration procedures.
To read more about contract lifecycle management and other related topics, visit our whitepapers here.