Accuracy matters: CLM’s role in ensuring contract integrity
In today’s increasingly complex business environment, contract lifecycle management (CLM) has become more of a necessity than just something a company should possess.
Why? Many modern organizations deal with a huge number of contracts. Utilizing a CLM system keeps documents organized from creation through expiration.
Plus, as legally binding agreements, involved parties must prioritize contract accuracy. Contract lifecycle management platforms assist with proper terminology, applicable regulations, signatures, dates, etc. The final version of the contract, as accepted by both sides, serves as a reference should concerns later arise.
Let’s examine CLM platforms in terms of their functions and benefits.
What is contract lifecycle management?
Think of contract lifecycle management as a way to systematically handle everything involved in the contracting process from start to finish. Such end-to-end attention moves things along quickly and thoroughly.
In our global economy, contracts are more detailed and numerous than ever. CLM ensures every “t” is crossed and “i” is dotted.
A centralized contract repository is the foundation of an effective CLM. It provides a single source of truth for all contracts, ensuring easy access, version control, and secure storage.
Key features of a centralized repository include:
- Version control: Tracking all changes and versions of a contract
- Metadata tagging: Tagging contracts with relevant metadata for easy search and filtering
- Search functionality: Enabling quick and efficient search of contracts based on keywords, metadata, and other criteria
Who uses CLM?
CLM proves very useful in manufacturing, real estate, finance, healthcare, and technology. The complexity of contracts in these industries and stringent regulatory requirements make CLM worthwhile for streamlining operations and mitigating risks.
Sectors that deal with large volumes of contracts that require standardized legal language and processes also depend on CLM systems. Retail, education, government, automotive, energy, and utilities are among the users.
The types of contracts, of course, will vary by the nature of each industry. Some common agreements dealt with in CLM systems include:
- Licensing agreements
- Software maintenance contracts
- Supply chain contracts
- Vendor agreements
- Franchise agreements
- Consulting agreements
- Lease agreements
- Construction contracts
- Grant agreements
- Patient consent forms
- Clinical trial agreements
- Provider contracts
- Loan agreements
- Insurance policies
- Credit card agreements
Benefits of contract lifecycle management
Organizations stand to gain significantly by implementing a CLM solution. Things CLM can do include:
- Reduce risk
Can help organizations identify and mitigate potential risks associated with their contracts.
- Improve compliance
Helps businesses adhere to contractual obligations and comply with all applicable laws and regulations.
- Increase efficiency
Automates tasks and streamlines workflows, significantly improving contract processing time and reducing manual effort.
- Enhance collaboration
Fosters better communication among stakeholders involved in the contract lifecycle.
- Reduce costs
Can help organizations save money by lowering the costs associated with contract management.
- Provide greater visibility and control
Provides a centralized view of all contracts, enabling better tracking, monitoring, and analysis.
Stages of the contract lifecycle
Contracts involve multiple steps. Contract lifecycle management solutions facilitate each one.
1. Contract initiation
Various business situations require contracts. Selling or acquiring goods and services is undoubtedly a common scenario. Or, perhaps the organization wants to enter into a partnership.
When the need for a formal agreement arises, contract creation begins. In this early stage, stakeholders consider desired outcomes. They identify key deliverables, performance expectations, and each side’s responsibilities.
2. Contract drafting and authoring
Think of this as the write-up stage. A contract needs to include all necessary details spelled out, not assumed.
Companies frequently turn to pre-approved contract templates instead of reinventing the wheel each time. Creators fill in these standardized templates with pertinent information. The CLM can often auto-populate using smart fields and integrations with other platforms.
The CLM may also be able to generate specific contract content based on input criteria such as region, products, services, and price terms. Authors can also tweak the individual conditions of the agreement as necessary.
Technology is convenient for drafting. Automation rather than manual input saves time and reduces errors. Tools powered by artificial intelligence can even suggest relevant clauses to include in the contract and identify potential risks that need consideration.
3. Contract negotiation and collaboration
Involved parties oftentimes do not agree with everything in the rough draft of a contract. They work on making mutually satisfactory changes through a negotiation process.
Ironing out the agreement requires much back and forth. CLM communication tools facilitate interaction.
Instead of multiple versions of the contract, collaborators can work together in real-time to perfect the document. The one unified workspace eliminates jumping around between various tools and files.
Redlining allows marking the contract to show changes or areas needing further discussion. The color distinction highlights revisions so stakeholders can easily see differences between versions.
4. Contract execution
This stage involves final contract approval by relevant stakeholders. If anyone sees a problem, such as the legal team noticing a compliance issue, the contract goes back to the previous step in the CLM process until it is resolved.
Automated approval workflows speed up the process by routing the document to the correct people in an orderly fashion.
Contracts require appropriate signatures to become legal. Waiting for people to issue their John Hancock can cause bottlenecks. CLM software can send notifications and reminders, and electronic signatures expedite execution.
Some companies choose a CLM with advanced electronic signature functionality. These additional user authentication measures increase confidence in the signature’s validity.
5. Contract management and compliance
The contract lifecycle does not end with e-signatures. Diligent monitoring ensures that parties carry out the terms.
CLM platforms aid in monitoring. They track key dates, milestones, and deadlines presented in the contract, monitor contract performance against agreed-upon metrics, and ensure adherence to all relevant laws and regulations.
With the advancement of AI and other technology, CLM software offers more post-execution contract management opportunities than ever before. Companies can gain valuable insights into contract-related issues such as:
- Contract cycle times
- Compliance rates
- Number of contracts managed
- Deviations
- Risks
- Financial performance (such as cost savings and revenue generated)
6. Contract renewal or termination
One of the most essential CLM systems notifications is awareness of a contract approaching expiration. This heads-up allows sufficient time to consider options.
As contracts near their expiration date, businesses must make decisions. Should they renew, amend, or terminate the contract?
Many factors influence the choice. Organizations consider their business needs and goals, assess the current contract’s performance and whether or not it added value to the business, and consider current market conditions.
Renewal could mean extending the current contract as stated but with new dates. It likely involves returning to the drafting stage to renegotiate contract terms and create a new contract.
Terminated contracts get closed out. The CLM system documents their end and properly archives them for reference purposes.
Tech considerations
Like all critical business decisions, selecting a contract management system requires thought. Don’t assume they are all the same.
Instead, think about what might work best with your company’s situation. When evaluating options, ponder questions such as:
- Does this CLM software offer the necessary features to support all stages of the contract lifecycle?
- Does this CLM solution have the ability to grow with us, such as handling increasing contract volumes?
- Will this platform integrate seamlessly with our existing systems, such as CRM (customer relation management) and ERP (enterprise resource planning)?
- Is this contract lifecycle management software intuitive and user-friendly?
- Does it maintain a detailed audit trail to track all contract-related activities?
- What type of security features does it have to protect sensitive contract data?
For many businesses, this last issue is of paramount importance. Look into how the CLM systems under consideration fare in terms of data encryption (both in transit and at rest) and access controls (limits on who can access into).
Buy-in
Leaders often want to see the business case for implementing a CLM system before adopting it. This request makes sense, as choosing the wrong tool for an individual organization’s situation leads to frustration and wasted resources.
Examine pricing. Accurately estimate the total cost of CLM system ownership, including software licenses, implementation costs, and ongoing maintenance.
Then, analyze the current state of contract management. Identify inefficiencies, risks, and areas for improvement.
Clearly articulate the value CLM could bring to the organization, such as cost savings, risk reduction, and efficiency gains. Being able to foresee the return on investment promotes stakeholder interest.
Once adopted, work on securing buy-in from another important group: staff.
Help employees understand the importance of effective contract lifecycle management and their roles and responsibilities. If they feel the endeavor has merit, acceptance will occur more rapidly.
Likewise, training and support should be provided on using the technology. Competence breeds confidence and a more positive attitude.
More resources:
Digital age workplace: Why soft skills matter more than ever 
Talent shortage: Addressing the growing gap in the workplace
Employee skill gaps: What they are and how to address them
Want more insights like these? Visit Beth Braccio-Hering’s author page to explore her other articles and expertise in business management.
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