When you think about the lifecycle of a contract, what do you consider as steps in that life cycle?
The acronym CLM is frequently mentioned, but how many of you know what it means and how tools can help manage it?
Let me first define the acronym.
CLM stands for Contract Lifecycle Management.
While contracts are not living creatures, they are documents that have a life of their own that requires managing and managing them is a task best done cross-functionally.
Contract documents and their lifecycles have primarily been the legal function's domain for too long. This can lead to missed sales growth opportunities, information asymmetry, and a lack of clarity on where things stand on a contract-by-contract basis.
Now, onto the typical steps in the lifecycle of a contract and what each step is about:
1) Contract template creation and simplification.
This refers to creating foundational documents to create a contract, like an agreement’s essential terms and provisions.
2) Contract creation.
This refers to things like using a template as your foundation and then pulling together other needed clauses and terms like pricing and services/support terms to create a complete agreement for review by one or more parties.
3) Contract review.
This refers to red-lining terms, capturing key business terms for tracking and analysis purposes, and adhering to a structured collaborative workflow for cross-functional review of a given contractual document.
4) Contract approval.
This refers to getting the contractual documents to the right people for approval and sign-off on its terms.
This often appears simple enough to complete, but in a complex company approval usually requires the input of many people in different functions and the satisfying of competing and conflicting concerns and priorities.
It helps to have a standardized approval workflow in place to facilitate easier approval.
5) Contract signature.
This is the critical step that makes a contract a binding contract.
When both parties sign the contract, the contract becomes a document both parties must abide by.
Both sides need to be clear on who has the authority to sign, who should be the ones signing the contract, and what tool will be used to sign the agreement.
6) Contract implementation and tracking.
This is where the real work begins. You've laid out all the terms you want to have in the agreement, and now it's time to make the words come to life.
This is also where you often start to track key milestones, delivery dates, and payment terms to ensure things remain on track.
7) Contract renewal.
Renewals can be tricky since sometimes a customer may ask for different terms or more or fewer services than before.
Renewals can also be tricky since the vendor will often seek to increase the contract value by offering additional services.
Both parties must track renewals and ensure that the terms are the terms still desired and if changes are needed.
7) Contract termination.
This is the final step where the agreement has run its course and things now need to be wound down.
Final Thoughts.
This seems like a lot to handle and manage. Indeed, it is.
It especially can be when you consider how many contracts even a single business may process each day, let alone each week.
Crucially, managing a contract's lifecycle is not and should not be a one-sided affair.
While a contract document itself is a legal document and typically and appropriately the domain of the legal function, managing its lifecycle is a cross-functional exercise and needs to be treated as such.
Many companies have long managed contracts manually without the support of technology. I have done so myself in past roles I've held. It wasn't fun and it wasn't practical.
Manual management is no longer a viable option in today’s digitally enabled and data-driven age. This is where having a CLM solution can make a big difference.
It can save a business time and money by automating the tracking and managing of contracts and often can contribute to a company's growth by allowing the business to make better strategic decisions based on data and analytics from a CLM tool.