Contracts are the lifeblood of business. They validate agreements between two or more parties, reducing the possibility of risks and defaults, and providing a way out if things do not go as planned.
Organizations in today's climate are spending more time on contract administration and contract compliance as they navigate managing hybrid or remote workforces, COVID-related leaves of absence, and new technology and functionality to increase organizational output and customer satisfaction.
Understanding the contract lifecycle management (CLM) process reduces time spent creating, negotiating, and managing contracts. The right CLM software optimizes contract management systems to make contract negotiation and execution more efficient.
What Is Contract Lifecycle Management?
A 2018 Gartner report on contract lifecycle management reveals that procurement, sales, and legal teams are often under pressure to speed up contract authoring, approvals, and renewals. However, it's challenging for them to gather accurate contract data from stakeholders without a good contract lifecycle management solution.
Contract lifecycle management is the process of requesting, negotiating, revising, renewing, and ensuring compliance with contractual terms while mitigating potential risks. A contract management system organizes administrative tasks to reduce reliance on paper, increase accuracy of contract data, and share real-time updates with involved stakeholders.
In many cases, sections of a contract may need to be revised, updated, or retrieved for reference. CLM software provides a central repository for stakeholders to store, sign, and suggest changes to contracts, even when working from different locations.
Obligation management is a crucial phase of contract lifecycle management. Merely getting approvals and e-signatures is not enough. Managers and service providers must clarify expectations and dispute resolution methods to make contract execution proceed smoothly for both parties.
Contract Lifecycle Management Benefits
Implementing a contract lifecycle management process is worthwhile regardless of your organization's size. Contract lifecycle management shortens contract approval cycle times by automating workflows, notifying stakeholders, and storing data in a contract repository. Other benefits of contract lifecycle management include:
- Speeds up contract lifecycle by creating and providing reusable documentation, contract templates, and clause libraries
- Streamlines contract creation, approval process, and other contract management stages
- Simplifies collecting e-signatures from required signatories regardless of location
- Highlights contract data and key metrics on an accessible dashboard
- Integrates easily with work and contract creation applications like Microsoft Word
- Notifies involved stakeholders of real-time contract updates, deadlines, or activities taken by other stakeholders
- Alerts the contract manager to bottlenecks and delays
- Automates a contract management workflow for audit and compliance matters
- Maintains an easy-to-access repository of records, rules, and processes for revisions and amendments
- Pulls relevant sales data from CRM tools to automate workflows and set new contract lifecycles in motion
- Frees up the negotiators' and legal teams' workload, creating more time for high-value activities
9 Stages of Contract Lifecycle Management
A contract lifecycle typically goes through six to nine stages, including authoring, negotiating, approving, and executing. The CLM stages of revising, reporting, and renewals are optional and depend on the contract at hand. Below is a breakdown of the nine stages of a complete contract lifecycle.
Stage 1: Planning
The planning stage starts with sending or receiving a contract request. Each party then identifies their needs, requirements, and goals for the agreement.
Collect any supporting documentation during this stage. Both parties must be detailed and thorough to ensure the contractual arrangement gets off to a good start. Using a contract lifecycle management software streamlines this stage and serves as a contract repository for relevant information for the stakeholders.
Stage 2: Authoring
The contract authoring stage can also be referred to as contract drafting or writing. After gathering details and requirements in the planning stage, the next task is to write it all down and share with both parties.
It's advisable to seek legal counsel to review and polish the contract language and eliminate all ambiguities and risk factors. Create and use contract templates to ensure you include all critical information and make it easier to create similar contracts in the future. A clause library ensures that all required clauses and terms are included in your contract.
Stage 3: Negotiation
During negotiation, both parties finalize decisions on the contract obligations defined during authoring. There may be back-and-forth redlining before both parties agree to the contract terms. Gather supporting documents in a central repository to allow stakeholders to retrieve contract data and information to make informed decisions.
CLM software automates this back-and-forth communication between both parties by notifying each one when their input is required or there's a contract update. Contract lifecycle management software also makes it so that every invited stakeholder can view the working document and suggest changes in real-time, serving as a single source of truth and resulting in faster negotiations.
Stage 4: Approvals
Once the negotiation is complete, the contract goes through another draft. Contract approvals follow after this draft as the contract is sent to decision-makers for their approvals and signatures. Depending on the contract requirements, both internal and external reviews may be necessary.
CLM software makes it easy to set up reviews and permissions for each stakeholder. The finalized document must meet obligations, milestones, and compliance standards. CLM software records an audit trail of changes throughout the contract lifecycle.
Stage 5: Signing
After approvals, someone with signing authority signs the contract. Contract lifecycle management software provides electronic signature software, making it easy to sign contracts on the go. Post-pandemic, companies increasingly rely on e-signatures. CLM software sends requests for signatures automatically upon approval.
Stage 6: Executing
This is the obligations stage. Once a contract has been signed, both parties acknowledge their predefined responsibilities, milestones, deadlines, and deliverables. Contracts should remain accessible for stakeholders to keep making informed decisions.
Stage 7: Revision
Contracts in lasting working relationships often evolve. Companies and orders may increase or the relationship between both parties may change. CLM solutions track contract revisions and changes, often including metadata like who made the change and when. Having executed the contract, legal departments must organize and store contracts for easy reference.
Stage 8: Reporting
This may also be known as the compliance stage. It checks that the deliverables and obligations of the contract are executed in compliance with relevant laws, standards, and best practices to reduce the chances of risks, penalties, and bottlenecks. Contract lifecycle management involves reporting of several different types. It also allows executives to set notification systems to complement their internal processes.
Stage 9: Renewal
The last stage of a complete contract lifecycle is contract renewal. Parties renew when the relationship between them is beneficial. Instead of going through the stages of a new contract, they agree to the same terms or renegotiate better terms and competitive prices. This can be done efficiently using a contract management software solution.
Choosing the Right Contract Lifecycle Management Software for You
Pairing good contract lifecycle management processes with efficient CLM software saves your teams and organization many hours of valuable time. Streamlining and automating contract management processes makes internal and external collaboration straightforward and efficient.
Customers using Pulpstream can manage their entire contract workflow lifecycle by following a simple, automated process, starting with a department request for a contract with a vendor. Then, you can easily:
- Generate a contract template by the legal team
- Conduct legal review
- Send to the vendor for review
- Redline back and forth
- Get final approval from the legal team
- Send to the vendor for signing
- Send to the requesting department for signing
- Notify stakeholders
- Track renewal cycles
Contract lifecycle management software assists in executing each stage of the contract lifecycle quickly. CLM software utilizes automation, cloud technology, and artificial intelligence to route contracts to stakeholders for reviews, approvals, and e-signatures.
Are you ready to structure your organization's contract lifecycle management process with a powerful contract management solution? Request a demo to see Pulpstream in action and get started.