All you need to know about Contract Lifecycle Management
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The global contract lifecycle management market is expected to be worth US$ 845 million in 2022, rising to approximately US$ 3 billion by 2032, with a CAGR of 13.5% during the forecast period.
But what is contract lifecycle management? And why do you need them?
Contract lifecycle management is the process of contract creation, modification, and monitoring prior to cancellation or expiration. Contract lifecycle management is crucial for businesses to stay compliant and protect their interests.
If you are a big corporation, you can employ an in-house legal department. Most mid to small companies do not have that luxury and therefore rely on law firms for all (or at least some part) of their legal needs.
The relationship is an important one. It is also complex, with various terms, clauses, and processes. Contract Lifecycle Management is the key to this type of relationship.
What is the Contract Lifecycle?
Anywhere from 55% – 70% of organizations DO NOT have effective contract management systems. And that becomes tricky because all major companies have thousands of contracts at any given point in time.
Given, that contracts are so prevalent and major organizations are not tackling them efficiently, contract lifecycle management comes in handy.
The Contract Lifecycle is the process that begins with a client contacting an agency and ends with the agency delivering its final product. It typically includes the following steps:
- Marketing and Sales
- Pre-Contract Negotiations
- Contract Preparation
- Contract Execution
- Ongoing Contract Management
What is Contract Lifecycle Management?
Contract lifecycle management describes the processes needed to manage contracts from inception to end. Contract lifecycle management aims to ensure that contracts are managed efficiently and effectively throughout their life cycles.
Contracts can be categorized by length of time, complexity, and importance. For example, a simple supply contract with a low risk of dispute may be processed differently than a complex contract with a high potential for disputes.
Contract managers should consider these factors when developing workflows for each type of contract in use.
Why is Contract Lifecycle Management Important?
Agreements are the foundation of all business relationships. They define the roles and responsibilities of each party and ensure that everyone knows what to expect from their counterparts.
- The average Fortune 2000 company has about 20,000 – 40,000 active contracts at any given time
- Companies lose 9.2% of their bottom line through ineffective contract management
- By 2023, 40% of I&O teams will use AI-augmented automation in large enterprises, resulting in higher IT productivity with greater agility and scalability
Contracts are not just about ensuring that you don't get ripped off or scammed. They're also about protecting your company's interests and ensuring that everyone involved understands what is expected of them.
However, there are many more reasons why contract lifecycle management is important for your company's bottom line. Here are some of them:
If you can save time on the lifecycle of your contracts, then you can save money. It's as simple as that. The more time you save, the more money you make.
Avoid Expensive Penalties and Reduce Risks
When you have a contract lifecycle management solution in place, you can avoid or reduce penalties. In some cases, these penalties can be quite expensive and even threaten your company's financial stability. However, all this can be avoided with the right CRM solution in place.
You can ensure that your contracts are up to date and compliant with current regulations by using a system that monitors changes in laws and standards over time.
In addition, it will also help you manage several different types of contracts simultaneously when needed—allowing you to easily monitor every part of your business at once without having to go through each document separately (which could take hours!).
Contracts are often the basis for legal action, but a well-managed contract can help avoid legal action and reduce legal costs if needed.
A well-managed contract can also help you reduce your legal risk by clearly understanding what's expected from both sides, reducing the likelihood that disputes will arise.
Improve Visibility and Transparency
Contract Lifecycle Management (CLM) is a process to ensure contracts are managed efficiently, resulting in increased visibility and transparency of contracts. CLM helps you improve contract management by providing the following benefits:
- It improves communication between stakeholders.
- It increases the speed at which you can respond to changes.
- It ensures that all relevant information is included in new or updated contracts (such as terms and conditions).
Increase Contractual Compliance
Contractual compliance is important to ensure your business is protected, and it often takes a top priority for organizations. Compliance is important for maintaining a healthy and safe workplace, protecting your brand image, and maintaining a good reputation.
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Key Steps in Contract Lifecycle Management (CLM) Process?
The contract lifecycle management process is a series of steps followed to ensure the successful execution of contracts. These steps can be divided into seven phases:
Drafting the Contract
The contract is the first step of the process, and it's important to make sure that you're getting all of your facts straight. The contract should be in writing, signed by both parties, and reviewed by legal counsel to ensure that it has all the necessary details. It's also a good idea to have management review your contract before sending it out for review by other departments.
This ensures that there are no errors or missing information in your contract, so you don't end up with any surprises or delays down the road when trying to do business with someone else.
Negotiating the Deal
Negotiation is an important part of the contract lifecycle management process. The negotiation process can be one-sided, so you should always be willing to walk away if you feel that the terms aren't right for your company.
If a proposed contract seems unfair or unreasonable, don't hesitate to say no and start over again with another company. In addition to negotiating with other companies, it's crucial that your team communicates effectively and works together throughout the process.
To successfully negotiate a new deal, everyone needs to trust each other and work together as one team.
Collaborating on the Contract
You're now at a point where you have a solid contract in place and are ready to start the implementation process. This is where collaboration becomes even more important. The benefits of collaboration include:
- A better understanding of how your organization operates.
- Improved communication.
- Better decisions.
- More effective solutions when issues arise.
Approving the Contract
The contract is approved by the board of directors. In some companies, all members have to sign off on the contract before it can move forward with further steps in its lifecycle.
In other companies, approval is given by one or more senior executives who have been delegated sign-off authority over certain contracts.
In either case, the contract document needs to be reviewed and approved by someone with sufficient authority at this stage.
Executing and Signing the Contract
The next step in the contract lifecycle is to execute and sign the contract. This involves finalizing the details, such as who signs, where they are signed, when they are signed, and other details.
The contract can then be used for monitoring purposes so that you know if everything is going well with your company's relationship with another party by measuring compliance with specific terms outlined in the agreement.
Tracking and Managing the Contract
The contract lifecycle management process is a critical component of any business. It can be complex and daunting, but the steps below will help you get started.
- Monitor the contract to ensure that it's being followed: This step ensures that your organization complies with all terms of the agreement. You should also ensure that internal parties, such as accounting or legal, are not interfering with deadlines or flexibility in negotiations by placing unreasonable demands on each party involved in the contract agreement.
- Monitor the contract to ensure compliance: This step requires you as an executive or manager at an organization to check whether or not employees are following through with what they agreed upon within their contracts regarding performance metrics, deadlines, and other details outlined in those agreements. You may also want to ensure that these individuals aren't violating any rules set forth by federal laws, such as anti-discrimination policies and labour laws (for example).
- Monitor the contract for enforcement measures: This step involves regularly checking if there is any breach of contract occurring on either party's part; there should be no hesitation whatsoever when enforcing penalties against violators since this could lead to serious consequences down the line if left unchecked (e.g., lawsuits).
Archiving the Contract
Archiving a contract means permanently removing it from active use. This is important because contracts become outdated and need to be removed as time goes on.
For example, if you have an agreement with another entity that does not have any potential for change or renewal, then archiving this contract would make sense because it is not necessary to remain in active use.
Archiving can also be used when moving contracts from one legal jurisdiction to another where there are different regulations on how long documents must be kept before being discarded (or "deleted"). Archiving involves:
- Determining whether a document needs to be archived based on its purpose.
- Review the terms of your agreement with another entity or individual.
- Choosing which steps should be taken next.
Benefits include saving storage space while reducing risk exposure by decreasing unauthorized access opportunities due to outdated information being stored online longer than necessary, increasing liability risks over time.
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What is a CLM Application?
A CLM application is a software program that carries out the specific activities of a CLM implementation. The software can be either an open-source or proprietary solution, but it must be able to carry out all of the relevant tasks outlined in the CLM Implementation Plan.
Many businesses use CLM applications as they allow them to streamline their operations and increase productivity. For example, many software packages are available that allow you to track your sales leads.
If you have a web-based business, you can track how many people visit your site from different sources and what pages they view on each visit. You can even store their contact details in a database to contact them later if needed.
It allows you to manage your business processes more efficiently. If you are looking for a solution to manage your customer lifecycle management, there are several applications available to choose from.
You can use them for either large or small businesses, and they will help you achieve greater results with less effort. The following are some of the most popular CLM applications:
- Salesforce Sales Cloud
- SugarCRM Customer Relationship Management Software
- Oracle Siebel CRM
- Salesforce Chatter Social Networking Platform
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Industries and Internal Teams Involved in CLM
CLM is a big focus area for many industries and internal teams. As such, the list of industries and internal teams involved in CLM is quite large, including but not limited to the following:
- Industries that are involved in CLM include:
- Automotive industry
- Chemical industry
- Consumer goods industry (CPG)
- Energy industry
- Food and beverage industry (F&B)
- Healthcare industry
- Leisure, hospitality & entertainment industry (LH&E)
- Manufacturing industry
- Oil & gas industry (O&G)
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How to select a CLM software?
Choosing the right CLM software is a difficult task. The market offers a wide variety of solutions, each with its own advantages and drawbacks. To make the right choice, you should consider several factors, such as:
Define your goals and requirements
If you don't have a clear idea of what you want from your CLM software, it will be hard to measure the success of your implementation. So before we look at any specific tools or technologies, let's consider why you should even invest in a CLM system in the first place.
Why do companies choose to invest in a CLM system? The most important reason is that they want to improve their customer experience. This can mean many things: better customer retention, higher satisfaction scores, and more referrals are all valid reasons for adopting such technology.
If this is not something that you're aiming for (and plenty of businesses aren't), then it's worth considering whether investing time and money into something else might have more impact than spending it on an expensive new CRM system that doesn't match up with the needs or goals of your company.
Consider the deployment options
When choosing a CLM software, you'll want to consider the deployment options. These include on-premises, cloud, or hybrid.
On-premises is the most secure option but requires a costly upfront investment in equipment, servers, and maintenance. Because there are fewer moving parts with an on-premises solution, it's easier to maintain than its cloud or hybrid counterparts. It also offers greater control over your data as it's stored on your servers rather than being shared with a third party.
Cloud solutions are typically cheaper because they don't require any upfront investment like hardware purchases. Instead, providers house all required infrastructure at their premises so users can access them remotely via browser-based applications (apps).
Cloud solutions are therefore more flexible because they can scale up quickly depending on demand levels, but this also means there may be less control over how you manage certain aspects of your workflow processes, such as reporting dashboards, etc.
You should compare vendors based on your specific requirements.
You're going to want to make sure that the vendor you choose has a good track record and references from other customers and customers willing to share their experience.
Also, it's important to look at pricing models, licensing models, and product roadmaps when comparing CLM vendors.
Focus on ease of use
When looking at CLM software, one of the most important factors you should consider is how easy it is to use. The best CLM solutions are intuitive and simple, allowing users to navigate their dashboards and reports with ease.
When it comes time to train new staff members or onboard new clients, a well-designed system can make this process much easier than an outdated one.
To choose an effective solution for your business, look for options that feature:
A clear user interface (UI)
Your staff shouldn't need special training to understand how they can best use the software when they come on board with you. If there are too many confusing elements or layers involved with navigating through the dashboard and reports within a given toolset, you may want to consider another option instead.
The UI should also be designed to provide easy access between different areas of functionality within your software's platform(s). In this way, everyone will know where everything is located at all times, so they aren't wasting time searching around when they need something quickly during normal workflow procedures.
Look for a vendor who provides ongoing support and training
You should look for a vendor to provide you with ongoing support and training. You want a company that will be there for you after the sale and makes sure your software is working as designed. If a company doesn't provide this, then find another one!
Contract Lifecycle Management (CLM) is no longer simply a necessity, but instead, it is now beneficial. Doing so will not only increase visibility into your organization's contract portfolio but will also add value to your business overall.
Implementing CLM allows your business to stop managing contracts and start managing the lifecycle of the contract, which improves efficiency and effectiveness across your organization.