Without contracts, there would be no business. Contracts help businesses manage risks and ensure compliance. This is why managing contracts is extremely crucial.
A CLM system involves managing contracts from inception to renewal or expiration. Furthermore, contract lifecycle management (CLM) is the quickest way for an organization to improve efficiency, gain insights, foster visibility, and reduce contract risk.
But how exactly does a CLM system help your business? We’ll provide a detailed answer below. Moreover, we’ll also highlight the stages of CLM and recommend a CLM software to enhance your business processes.
What is CLM System?
CLM or contract life cycle management is the process of managing any contract type from its inception to its expiration or renewal. CLM is critical if your company hopes to improve business processes while streamlining the contract management stages to reduce cost and improve efficiency.
Contracts are essential components of all businesses. And by optimizing contract management processes and implementing CLM, your organization can control all crucial stages of the contract lifecycle, enhancing contract value and performance.
Poor management of contracts can negatively impact your company’s reputation and bottom line. Moreover, given how important contracts are to any organization, an effective CLM system can offer several benefits.
So, what does a CLM system do? a CLM system provides a centralized digital repository for businesses to store all of their legal documents. Similarly, artificial intelligence is employed in CLM systems to import and analyze contracts, identify risks, manage contractual responsibilities, and so on.
Stages of Contract Lifecycle Management
Every contract has different stages that it must go through to get completed. Here are the stages of CLM.
1. Request Stage
Every contract begins with a request. This is the stage at which all parties gather the necessary information to make a contract that suits both parties. Furthermore, this stage is one of the most crucial stages of a contract lifecycle. However, due to its importance, the request stage is very time-consuming.
2. Authoring Stage
The authoring stage is the point the contract is written. In this stage, both parties write down their terms and add relevant information regarding their contract agreements.
3. Negotiation Stage
This stage involves both parties negotiating the contract details. The duration of the contract negotiations depends on the parties, the size of the contract, and so on. The use of CLM software can significantly reduce the time spent during negotiations.
4. Approval Stage
After both parties agree on the certain terms, clauses, and dates associated with the specific contract, the contract can be approved. This stage usually involves top executives and stakeholders reviewing the contract parameters required to ensure everything is in order. The contract can then be signed once the relevant stakeholders have approved it.
The stage entails the contract being signed by both parties needs to sign. Also, if a CLM system is used, the signature stage can be completed electronically over the internet, significantly reducing the time required for this stage to complete.
Every contract involves a set of obligations and responsibilities that both parties must fulfill. Moreover, it is the responsibility of all involved stakeholders to verify if the stipulated obligations can be met.
Compliance means that all parties involved in the contract lifecycle adhere to the stipulated contractual obligations. However, compliance can be challenging to track without a system or CLM software. Failure to meet compliance may result in bottlenecks, delayed payment, and other risks.
8. Renewal Stage
When a contract expires, both parties can decide to renew the contract depending on how the terms of the previous contract were fulfilled. With a CLM system, businesses can track the expiry dates of the contracts and any approaching contract renewals.
How CLM System will Benefit Your Business
Implementing a CLM system is crucial for any business managing numerous contracts. A CLM system can yield several benefits for organizations who choose to adopt it. Here are five ways a CLM system will benefit your business.
1. Reduces Risk
An effective CLM system must be implemented to manage and reduce contractual risk. A CLM system can provide enhanced risk management and monitoring capabilities. As businesses expand and increase their contracts, contracts change and grow, particularly in terms of their value and risks.
With a CLM system, your business can swiftly identify, access, understand, and act on any contract. Thereby ensuring compliance with any responsibilities or obligations. As a result, it is critical to audit your contracts regularly for business success and to reduce the risks of litigation and fines.
2. Improves Efficiency
The more efficient a CLM system, the less money and time it will cost your company. An effective CLM system can boost efficiency. A CLM system should assist your company in continuously improving and accelerating your organization’s processes. When you implement a CLM system in your business, you will notice an improvement in the speed of the initial contract cycle.
3. Increases contract visibility and insight
Storing files in a centralized, digital repository improves contract visibility. A contract may undergo several revisions over its lifecycle, each involving different departments in your organization.
A CLM system allows businesses to track several aspects of the contract’s lifecycle, ensuring that nothing falls between the cracks or is overlooked. Moreover, if certain personnel can access all data pertaining to each contract, your company will be better placed to capitalize on growth opportunities.
4. Decreases Costs
Because all reliance on physical aspects is removed, automating contracts using a CLM system decreases costs related to materials and logistics. According to Goldman Sachs, CLM systems decrease inaccurate payments by 75-90 percent as well as operating and processing costs by 10-30%.
5. Facilitates Collaboration
CLM systems enable authorized personnel to work on the same contract simultaneously. This system also enables the automation of manual processes. Managing multiple contracts simultaneously frees up other personnel to work on other administrative tasks. Furthermore, because all parties have access to the same information, it minimizes the chance of misinterpretation of contractual obligations.
How to Choose a CLM Solution
After reading how CLM systems can benefit your business, the challenge is selecting the right solution for your business. Look for a solution that is:
Rather than dealing with inefficient contract management processes, utilizing reliable CLM software can propel your business to the forefront of contract management.