You write a contract, you sign a contract, you execute a contract – and that’s it, right? You certainly can manage your contracts this way, but in doing so, you will never be certain whether your contracts are working in your favor. What you need is a system that collects and analyzes data from every step of the contract process, one that automatically alerts you to certain milestones in your contracts, and one that ensures you are benefiting from every agreement. What you need is contract lifecycle management.
What Is Contract Lifecycle Management?
A contract’s lifecycle consists of the various phases of an agreement as a contract is created, executed, and terminated. Though different businesses organize contract processes differently – sometimes including more steps, sometimes fewer – the different points of a lifecycle typically include:
- Request. An individual or business requests an agreement with another entity.
- Create. A document is created to detail the terms of the agreement.
- Approve. The appropriate authorities for each entity approve the need for the agreement.
- Negotiate. The terms are balanced to ensure both parties benefit.
- Sign. The final agreement receives the signatures of the appropriate authorities.
- Capture. Relevant documents are organized into a usable file.
- Comply. Both entities perform the obligations stated in the contract.
- Manage. The individual or business should monitor the contract, ensuring that appropriate milestones are met. This might include terminating or renewing contracts when suitable.
- Optimize. Businesses can gather data on active and ended contracts to improve future agreements.
At any of these points, the process could stall, become needlessly complex, require extensive resources, or otherwise become inefficient. That’s why you need contract management solutions: to assist you in moving through each phase successfully and developing a portfolio of strong and beneficial contracts.
The goal of contract lifecycle management (CLM) is to simplify the process of moving through each phase in the contract lifecycle. Contract management tools perform a variety of tasks, such as comparing old and new documents, surveying contracts for inconsistencies and mistakes, collecting data throughout a contract’s lifecycle, and more. Often, tools will automate various aspects of contract management; for example, software might recognize looming contract milestones, like fulfillment deadlines or renewal cutoff dates, and alert you to them. This kind of assistance should ease your mind and reduce stress related to the contract process – while providing dozens of other concrete benefits to your business.
How Do Businesses Benefit From CLM?
CLM is an essential tool for growing businesses. Here are some of the top benefits most businesses experience after adopting one or more CLM solutions:
- Central storage. In days of yore, businesses would build large, dark rooms full of shelves for storing contracts. These days, most contracts are digital, and if you don’t have a designated digital storage space for them, they are likely stashed in folders all over your network. By necessity, CLMs bring together all contracts and related data, which makes it easy to locate and use that information.
- Enhanced security. Contracts contain all sorts of sensitive data that could jeopardize your business. By containing them within your CLM, you can be certain that your contracts are protected by CLM as well as additional security precautions you might impose, such as access restriction and encryption.
- Electronic collaboration. It can be difficult to arrange time to speak with other party members to discuss contract terms. CLMs allow you to collaborate electronically, altering documents with new language to suit all parties. Plus, you can use e-signature tools to collect signatures over the web, again saving time and resources.
- Version control. Most CLMs track changes made to documents, so parties can observe how the agreement has grown and changed. Plus, CLMs save old versions of agreements, so you can return to a previous version if the updated option is disadvantageous.
- Risk management. Every contract introduces risk to your business, but the more you can reduce that risk, the better. CLM analysis tools can identify risks, such as penalties for non-compliance or missed deadlines, loopholes, and non-standard language, and alert you to them, so you can avoid unnecessary risk.
- Compliance management. Finally, even the barest-bones CLM will track your and other parties’ compliance with your contracts. Manually monitoring every individual contract will become impossible as your business grows; CLM solutions track the terms of the contract and send notifications when appropriate conditions are met.