The contract lifecycle management for legal operations is a complex task in an increasing workload. And legal teams encounter ongoing uncertainty when dealing with compliance changes and contracts themselves. Contracts are important elements of any business, which carry the most risk and therefore should evolve to a digital platform to improve the operation and workflow of the legal department.
The Legal Contract Management Workflow
Legal contract management extends far beyond managing documents. It encompasses the entire lifecycle of a contract. The business is dependent on how well the contract process is managed and mistakes can increase liability and significantly impact revenue.
Contract management usually falls under the responsibilities of an in-house or external legal team but it can affect other departments such as human resources and sales who need contracts with third parties. Relying on a legal resource to administer every contract is a time-consuming and expensive task.
Stages of the Life Cycle
To effectively manage the contract lifecycle including using software, it’s imperative to have a full understanding of every step involved as well as other processes and tasks that contribute or influence the life cycle.
- A contract is requested.
- The contract is created.
- Terms are agreed between parties.
- Internal approvals review and ensure compliance.
- The contract is signed, executed, and stored.
- Contract parties ensure they meet contractual obligations.
- The contract is updated, terminated, or renewed for another cycle.
Improving the Contract Workflow with CLM
An automated CLM system avoids the worry of missing renewal dates, improving visibility across the contract portfolio, getting the right approvals from the right people, assessing overall risks, and much more. The worst part of any contract process is not knowing what you don’t know. The following definitions explain how the CLM functions in the life cycle.
The life cycle starts when a contract is requested. Oftentimes this request is verbal or informal, which can slow the process down until all the relevant information has been gathered. An automated contract request process lets requestors define the contract type that is needed and select the relevant parties involved.
Contract Initiation and Draft
The first draft of the contract is drawn up. Using CLM software streamlines this process through templates and clause libraries. A manual process will require a legal expert to create the draft, which causes bottlenecks and delays. Templates expedite the process for draft contracts using standard clauses.
Once a draft is done, it can be circulated to get the terms agreed by involved parties on service levels, liabilities, renewals, termination, intellectual property, and so forth. It’s important to use updated industry terms and clauses and be able to track edits and comments. CLM is an efficient platform to monitor and distribute contracts during the negotiation phase.
After the contract terms are agreed and the document is revised, it can be approved by the key internal and external parties. A contract management system automates the route for approvals to decrease the contract cycles.
Once the contract is approved, it can be signed by being distributed to the relevant people who can instantly apply secure, digital signatures. After signing the CLM system is automatically uploaded to a central repository and executed on the defined start date.
This is the phase once the contract is in effect and both parties meet their side of the agreement. A CLM system tracks key dates and milestones to ensure obligations are met and provide contract reports for compliance.
A CLM system will provide reminders before the contract termination date is due. This gives you the chance to engage with the other party and discuss options for renewal, which will start the lifecycle again. If a contract is terminated, the relevant updates are done to close it on the termination date.
CLM facilitates the rapid creation and execution of contracts allowing you to receive or provide services and payment quicker. The more accurate and compliant the contracts, the less risk is involved, and less time is wasted on disputes and revisions. The overall process is managed end-to-end improving efficiency, overall performance, and increasing revenue.
An automated contract management solution moves away from the age old era of manual and disjointed processes to deliver high-quality services to both internal and external customers.
CLM Key Benefits
CLM addresses pain points commonly associated with contract management.
- It helps find a balance between control and speed freeing up legal resources and preventing bottlenecks to move the contract through the cycle quicker.
- There is full visibility of all contracts and their terms and obligations. If you cannot see the information, you cannot manage or control it. Visibility is key when it comes to tracking milestones and getting alerts for upcoming termination and renewal opportunities.
- CLM avoids the pitfalls of using inconsistent legal terms and clauses through the use of predefined clauses. It helps minimize risk and confusion as well as reduce the time needed for a legal resource to review a contract.
- CLM drives contract quality, reduces cycle times, and improves on the negotiating process and outcome.
- Integration with Word, PDF, email, and digital signing applications empowers the organization to realize commercial excellence.
Getting your company’s contracts in a central digital location is the first step in unlocking their true value. Analyzing contract data and how the users interact with the system, provides an in-depth view on the efficiency of your contract lifecycle management.