What is Contract Lifecycle Management (CLM)? A Simple Guide

What is Contract Lifecycle Management (CLM)? A Simple Guide
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When it comes to tracking and managing a contract's performance, compliance, and other success criteria across all phases of the document's lifespan (from execution through renewal or expiry), Contract Lifecycle Management (CLM) can be a game-changer for businesses.

An effective CLM system gives users instant access to the latest contract versions, allowing for easy tracking of changes and amendments, and creating a secure repository for all contract-related documents. It will also automate critical tasks such as contract renewals and expiries, notifications, and approvals to help keep the contract on track.

When a contract is suggested or requested, the management process officially starts. It continues through the provision of the item or service promised in the contract and contract renewal.

Businesses of all sizes must handle a variety of contracts concurrently, each at a different stage in the contract lifecycle. Typical benefits include reduction of risk, increase in efficiency, and boost in contract value. Depending on the services being provided, many contract types exist. The contract's lifetime is essential because every phase, from planning to execution, needs to be completed flawlessly for the agreement to be successful.

The most profitable and efficient contracts are produced with streamlined and competent contract administration. By enhancing the operational and financial performance of the organisation, such efficient contracts drastically lower the cost of risk and increase the value derived from them.

The use of officially organised contract management methods results from increased contract demand, automation, and enhanced contractual compliance.

The contract management process is deemed successful when the service delivery arrangements are acceptable to both parties. Both parties must be receptive and aware of their responsibilities under the contract. There are no disagreements or unexpected events as a result of this. Instead, it is preferable to consider every potential problem and efficiency in advance.

How Would Contract Lifecycle Management Benefit Your Company?

There are countless advantages of contract management that cannot be disregarded. Here's a look at some of them:

Facilitates The Businesses Operations

Contract management aids in the streamlined and effective operations of the firm. It assists in structuring company goals, planning the means to achieve them, and analysing those goals. As a result, contract management aids in locating specific areas for cost and revenue depreciation.

Boosts Operational Efficiency

Manual contract management processes require less work than automated ones, which boosts productivity and narrows the mistake window. Additionally, it also enables businesses to focus on more essential tasks that contribute to the company's growth.

Reduces Financial Expenditure

Contract management streamlines business transactions and performance by regulating the organisation's involvement with its suppliers. As a result, it increases organisational financial transparency and curbs unauthorised spending. Procedures for contract management also assist in finding chances for further cost reductions inside the company.

Improves Supplier Visibility

Every firm depends on its suppliers in one way or another. The quality of a company's products and services is significantly impacted by the supplier's capabilities. Contract management lessens the likelihood of disruptions in the supply chain by maintaining supplier visibility, highlighting performance review metrics, and serving as a vehicle for developing long-term, collaborative partnerships with the suppliers.

Enforces And Improves Compliance

Several compliance risks are associated with non-contractual relationships. Contract management not only diminishes these risks but also reinforces and enhances organisational compliance by holding all parties to the agreement accountable and providing a system for audit and review.

Stages Of Contract Lifecycle Management

A contract must go through several life stages, such as initiation, negotiation, execution, start-up, operational phase, renewal, and finalization, before signing. At each step, it is necessary to control the types and nature of the goods or services indicated in the contract.

Contract lifecycle management, as seen from the client's perspective, is the organisation of critical tasks necessary in each contract phase. For example, it can include assigning responsibility for the actions required to certain people and keeping track of the contract's development over its entire lifespan.

Minimising surprises, ensuring that the supplier provides the agreed products or services in accordance with the contract, and achieving the anticipated business benefits and cost performance are the ultimate goals. The contract lifecycle management steps are briefly depicted in the diagram below.

Negotiation

Before the contract is drafted, the terms and conditions of the business, suppliers, and other key stakeholders are discussed. Then, the contract is prepared and negotiated on specific conditions like commitments, payment, time duration, etc., only after knowing the obligations, duties, and requirements of the business and its suppliers.

Therefore, negotiation is the most crucial phase for a successful and efficient contract. The contract is then finalized and proofread before being suggested for implementation.

Execution

A contract can be implemented in either a minor administrative matter or a significant event depending on its nature and value. Multiple parties must authorise, examine, and sign a new contract. Doing this decreases the likelihood of unfair contracts and the potential for fraud. Even though electronic signatures are becoming more and more widespread, certain nations have placed legal limitations on specific scenarios. The client and the provider should be confirmed rather than presumptively identified to prevent delays in contract execution.

Throughout this drawn-out process of contract formulation to execution, the pertinent contract terms must be recorded for potential future purchases. Similarly, routine assessment of the consumer's standard contract terms may turn up modifications that might shorten the time required for future negotiations and acquisitions while accelerating supplier approval.

Start-Up

There's a chance the party who negotiated the contract won't be the one regularly interacting with the contractual goods. They must thus be provided with a clear understanding of their responsibilities.

The parties must be given information on the consumer's and the supplier's obligations and rights, ensuing compliance with those requirements, issues that must be settled after the contract's execution, and any contract limitations. Before signing the agreement, the parties must know its key provisions, the duties involved, and other legal nuances.

Operation

The Operation stage of a contract's lifetime, as opposed to previous phases, is the one that most significantly affects how long it will last. Therefore, throughout the contract's lifespan, the supplier's and the customer's roles and working relationship should be monitored to identify any issues that may arise.

The Operation stage can be divided into the following categories:

1. Control Contract Changes

A contract must be amended, and modifications must be made for requisite reasons. This can include changed business circumstances, the regulatory environment, economic trends, and technology. Such adjustments should be made regularly with official documentation and mutual consent.

2. Track Obligations Compliance

A contract outlines each party's duties, which must be followed to achieve favourable contractual results. To meet deadlines, the responsibilities are monitored and documented.

3. Check Supplier Performance

Regular delivery monitoring allows for the evaluation of the supplier's performance. Based on the user satisfaction survey, this controls the interaction between the staff and the user to offer a corrective action to the supplier.

4. Perform Periodic Reviews

A contract is formed for a specific timeframe. Therefore, the contract must be reviewed frequently for any situational modifications. This would make it easier to see any potential issues preventing the contract from providing the anticipated advantages.

The periodic review is performed under the following headings:

  • User Satisfaction with Supplier: The importance of the human element in the success of contracts cannot be overstated. When customers are unhappy with the provider, it can be difficult for a firm to earn profits. A consumer satisfaction report aids the company in amending contracts and enhancing its products or services. Moreover, the user satisfaction report enables the company to modify the terms of the contracts and improve the products or services.

  • Contract Relevance: The contract must be changed through relevant paperwork and management procedures because it is significantly impacted by contractual clauses, constrained opportunities for increased innovation or efficiency, or an unfavorable degree of friction with the provider.

  • The realization of Contract Reasons and Value for Money: Periodic reviews are frequently carried out when a long-term contract expires or is being extended for financial benefits.

  • Continuous Improvement and Innovation: A long-standing company or service has to be updated to keep up with the pace of technology to operate at its best. For the advantage of customers and suppliers, a contract should include ongoing improvements and novel ideas.

  • Supplier Benchmark: Reviewers should ascertain if supplier pricing is competitive, consistent across the market regarding customer-facing business operations, and responsive to changing market dynamics.

5. Address Issues

Long-term conflict between the company, the supplier, and the customers is always possible. Since even minor issues can damage a business relationship and result in conflict, it is crucial to recognise potential problems and develop practical solutions.

6.  Resolve Disputes

Any problem, no matter how big or little can cause a chain of events in business to be irreparably disrupted. As a result, it will drive business ties to fall apart. To avoid more problems, the matter must be settled.

Renewal

Before it is ready for signature, the contract is reviewed and updated to ensure that it accurately reflects the current situation.

Even after the contract has been signed, renewal is necessary before it expires if:

  • There is a constant need for the supplier's products or services.

  • The firm accepts the supplier's service since it works well and keeps things operating smoothly.

  • High levels of compliance with all commitments have been attained without issues or disasters.

Conclusion

These phases of contract management must be completed for every deal. However, due to the enormous number of contracts, it is challenging for anybody to keep track of these binding contracts and recall each contract's restrictions.

The proper CLM system links the contracting process to order fulfilment and invoicing, avoiding mistakes, lowering risks, and enabling more precise revenue forecasting. With the correct information, you can approach contracts as their assets, giving you deep insights and a competitive edge throughout the contract supply chain.

Therefore, contract lifecycle management has emerged as a critical component of business strategy for many firms. Thanks to technology, various software platforms are available that can automate and keep track of the entire lifecycle of a contract. If you are searching for the same, check out ZoopSign, an end-to-end contract management platform that can automate entire contract management processes from creation to expiry. Schedule a free demo today!

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