He is a rare business leader who believes contracts are fun. Indeed, contracts, from their creation to fulfilment and beyond, can be described as many things — tedious, time-consuming, hairsplitting, and headache-inducing — but certainly not something to look forward to, not something fun.
Thus, when businesses want a simple, thorough, and effective solutions for managing their contracts, from creation to fulfillment and beyond, they turn to contract lifecycle management services (CLM). New business leaders unaware of CLM stand to benefit greatly by learning more about the lifecycle of a contract and how management services can make their contracts more efficient and effective.
What Is a Contract’s Lifecycle?
A contract hardly pops into existence in perfect form, and neither does it disappear out of the blue. All contracts follow a predictable lifecycle, from interest to termination, and understanding that pattern is key to contract lifecycle management. Fortunately, the stages of a contract’s lifecycle relatively straightforward:
- The Request Phase. One party makes a request of another party for a deal or project.
- The Create Phase. A party drafts draw up documents to formalize the deal.
- The Approve Phase. All parties determine who and what is necessary to approve the deal.
- The Negotiate Phase. All parties balance risk and value to solidify the terms of the deal.
- The Sign Phase. All parties sign the final agreement, in-person or digitally, and exchange copies.
This is where many business leaders stop managing their contracts, assuming all parties will behave according to the terms of the deal. However, in truth, failing to pay attention to contracts after their signing is willfully ignoring an opportunity to improve a business’s relationships and performance. With CLM, contracts live a full and rich second-half of life, which includes the following stages:
- The Capture Phase. A party aggregates all documents pertaining to the deal in a central system, which reads and analyzes all of that party’s contractual risks.
- The Comply Phase. The party fulfills its obligations to the contract. Some CLMs work with smart contract protocols to facilitate enforcement during this stage.
- The Manage Phase. The party tracks data defined in its contract portfolio, including rights, renewals, amendments, and relationships, making changes and sending notifications to relevant parties as necessary.
- The Optimize Phase. A party gains insight into its contracting behavior, working to improve contractual terms and performance to gain more value and lower risk.
What Is Contract Lifecycle Management?
Contract lifecycle management is best defined as a process of managing the process of contracting. It is closely observing the above stages of contracting, analyzing them for strengths and weaknesses, and strategically refining the system to benefit a specific party. There are plenty of ways to accomplish CLM, from manual methods to outsourced firms. However, because a business’s contracts tend to be varied and extensive, most savvy business leaders prefer to rely on comprehensive digital services, which reduce costs while enhancing features. For example, CLM software can provide automated contract management, which offers real-time updates on ongoing deals. Businesses that juggle several contracts at once should consider automated CLM options.
What Are the Benefits of CLM?
Ultimately, the goal of CLM should be enhanced efficiency and effectiveness of the contracting cycle, from the initial request to expiration and beyond; as long as a business can accomplish this, its CLM works. Still, there are additional benefits to functional CLM, including:
CLM services help to standardize the contracting process, which reduces the likelihood for errors while increasing speed of contract development.
Without a company-wide system, contracts can be tucked into any desk drawer and hidden on any hard drive. CLM creates a centralized system that makes finding the right contract fast and easy.
- Risk mitigation
Every contract requires several risks for all parties involved, but reliable CLM systems reduce those risks with digital accurateness.
- Statutory and reporting compliance
CLM necessitates documentation and record-keeping, which tends to keep companies safe from compliance regulations.
- Enforcement of complex rules
CLM makes it easier to implement and enforce complex rules, such as rebates, discounts, and incentives, so businesses can use these tactics to boost sales.
- Enhancement of other management systems
When the contracting cycle is running smoothly, it is more likely that supplier relationship management and customer relationship management is easier.