What Is Contract Lifecycle Management (CLM)?

Contract lifecycle management (CLM) is the process of managing contracts throughout their lifecycle, from initiation to execution, renewal, or termination. 

Effective CLM enhances workflow efficiency, promotes collaboration and provides insight into contract performance. Organizations can enrich these processes by leveraging CLM technology.

Explore the basics of contract lifecycle management and how a CLM system can optimize your business.

What is contract lifecycle management?

CLM tracks and manages contracts with vendors, partners or employees. The process involves contract creation, performance monitoring, compliance checks and renewal or closure. CLM facilitates a smooth process from inception to completion.

Many organizations use systems, such as CLM platforms, to streamline the contract lifecycle. These platforms make managing contract lifecycles easier and more efficient. 

What is a CLM platform?

CLM platforms automate the contract lifecycle management process. These digital platforms integrate features to solve common contract lifecycle management challenges. Many organizations adopt CLM platforms to replace manual processes. Automation saves time, reduces risk and improves contract insights.

CLM systems offer solutions at each lifecycle stage for a smoother, more effective process. 

What are the stages of contract lifecycle management? 

Here is a breakdown of the CLM process:

1. Initiation 

A contract request kicks off the lifecycle process. An organization identifies the need for a service, product, partner or employee.

2. Creation 

After initiation, the issuing organization creates a contract draft. This draft includes agreement obligations, milestone dates, regulatory compliance and other terms.

The issuing party drafts or “authors” an agreement after a successful initiation. The draft sets out the obligations, terms and clauses of the contract. Organizations may use a pre-built template or create the contract from scratch. 

CLM platforms provide templates and clause libraries for quick, efficient contract creation. This functionality accelerates drafting and ensures language consistency across multiple contracts.

3. Negotiation

Before parties sign the contract, they enter a period of negotiation. The drafting party presents the counterparty with the contract. The counterparty reviews and provides feedback, leading to further discussions or contract amendments. 

Negotiations ensure that both parties benefit from the agreement. During this stage, legal teams track any amendments or feedback. 

4. Review and approval

If negotiations are successful, the parties review the contract again before signing. Reviews may happen at any point in the contract lifecycle. CLM systems automate workflows, optimize the review process and allow stakeholder collaboration. 

Following a final review, the contract is ready for approval. Larger organizations may need approval from more than one party or department. Manually getting each person to review and approve is time-consuming. Approval capabilities built into CLM tools solve the key challenges of this process. 

5. Execution

The relevant parties sign on the dotted line to execute the contract. In our digital world, e-signatures have become the norm. CLM platforms integrate e-signature capabilities. Digital signatures speed up signing while ensuring security and legality for digital documents.

A contract becomes effective after execution. All parties meet their obligations as per the agreed terms throughout the contract period.

6. Storage and organization

After execution, the contract’s lifecycle truly begins. Contract managers must continue to track term adherence, contract performance and compliance. 

Contract storage and organization are crucial to allow easy access to files for review, compliance checks or reference. An organized filing system streamlines inter-departmental workflow management.

A centralized, searchable contract repository is the cornerstone of any CLM system. It offers a secure, accessible location for all contract documents. Users can search for individual contracts or clauses and view customized charts, dashboards, reports and saved views.

7. Tracking and reporting

Contracts can change many times during their lifecycle. Any amendments must meet global and local regulations, which may also change over time. It’s important to avoid mistakes that can increase risks. Tracking versions, changes or notes is essential for managing deadlines, compliance and deliverables.

Evaluate each contract’s performance based on organizational goal impact and KPIs. Monitoring contracts also protects against noncompliance and vendor fraud. CLM platforms generate customizable reports to analyze quality, efficiency, timeliness and cost savings. Eliminating bottlenecks helps streamline workflow and boost productivity.

CLM’s holistic approach allows users across departments to target underperforming contracts for better decision-making. It monitors performance using automated alerts, escalations and assignments via integrated messaging.

Users can generate reports on metrics like renewal lengths, spending and delivery dates. This data can be useful for contract renegotiations. 

8. Renewal or expiration

When contracts come to the end of the agreed term, they either end or renew. Renewals may require renegotiations and contract reviews before approval. In some cases, contracts may auto-renew without the client’s approval or knowledge. Here’s where keeping track of contract milestones is important. 

Setting manual reminders for dates takes time and carries the risk of human error. CLM tools provide an easy solution. They offer automated contract renewals and expiration reminders to prevent missing critical dates. This component handles end-of-contract processes and prevents auto-renewals or service lapses.

How do CLM platforms work?

A CLM platform uses AI-driven functionality to integrate people, processes and technology for efficient end-to-end contract management. 

It does this by:

• Centralizing contracts in a searchable repository.
• Evaluating contract obligations and supplier performance.
• Maintaining compliance and securing data to avoid legal action.
• Ensuring your contracts are efficient, secure and perform to optimized standards.
• Identifying outdated compliance terms, pricing or currency rate changes and errors.
• Analyzing sales KPI outcomes by department, individual, customer or any other variable.
• Reducing revenue leakage through reporting and analysis of complex sales terms and agreements.
• Increasing spend control through automated workflows and tools for sales or procurement departments.

Disorganized contract management without centralized storage and streamlined workflows leads to poor outcomes. CLM platforms help improve outcomes through efficient contract analysis. The right tools allow the assessment of completed contracts and the entire portfolio. Quick access to contracts and clauses by customized categories enhances effectiveness and compliance.

What are the benefits of a CLM system?

A CLM platform simplifies the management of contract lifecycle processes. Manual management is possible but not recommended because it takes time, increases risk and liability and fails to leverage contract data.

Below are the top benefits of implementing a CLM: 

1. Streamlines workflows 

Manual contract processing can become protracted, jeopardizing deal completion. Contracts often include time-sensitive clauses that, without quick execution, can nullify the agreement. CLM systems streamline workflows through automation, quality control and efficient lifecycle management. Team members spend less time processing and executing contracts, legal spend decreases and turnaround times speed up.

2. Enhances compliance

Noncompliance poses significant risks to businesses. It can result in missed opportunities, penalties and the revocation of business licenses. Fines can cost millions or even billions of dollars in worst-case scenarios. 

Rule-based contract management platforms reduce compliance issues and meet ever-evolving regulations. Compliance management features help organizations meet internal policies and external regulations. The CLM system automates alerts and compliance checks throughout the contract lifecycle. 

3. Amplifies reporting capabilities

Traditional contract management platforms are repositories only. They fail to convert complex data into actionable insights without human intervention. In contrast, CLM systems extract metadata, perform context-driven searches and customize reporting. These tools provide real-time reporting for timely project completion and resource optimization. 

Custom reporting tools allow organizations to draw only relevant data. View customized reports on budgets, spending and obligations management. Search expirations by department, status or vendor. By tagging contract data, you can build and schedule reports for different stakeholders.

4. Maximizes revenue

Contract data is a chance for businesses to boost revenue and cut costs. This data reduces expenses, shortens sales cycles and improves compliance. 

CLM programs drive more revenue by reducing contract management costs. Automated workflows decrease turnaround times, enrich negotiations and lessen risk.

5. Monitors obligations

Overlooking contract expirations and renewals can expose businesses to legal risks. For instance, unauthorized use of intellectual property post-contract can lead to litigation. Licensors may suffer revenue loss due to missed expiration dates. CLM tools with alert functionality can prevent these oversights. Timely action on expirations and renewals avoids unnecessary costs from auto-renewal clauses. 

6. Protects data 

In today’s digital landscape, protecting sensitive information is vital. Unrestricted access to systems can result in data breaches or privacy violations. Multi-layered controls increase data security by restricting access to authorized parties only.

Security is often one of the top priorities of contract management. Data breaches can lead to financial losses, damaged reputations and unhappy stakeholders. Protecting sensitive data such as intellectual property, pricing or personal information is critical.

CLM platforms can provide high-level data security with multi-level access and permission controls. It also delivers third-party audit and disaster protection infrastructure to reduce data breach risk. Security should always be a paramount consideration when investing in a CLM platform.

7. Enhances data analysis

Analyzing contracts can provide crucial insights into how they perform over time. It’s important to analyze individual contracts at the end of their lifecycle and overarching performance trends. Contracts can become obsolete for various reasons. For example, the language of regulatory compliance evolves over time. Contracts may encounter breaches, clause language issues and missed outcomes.

8. Increases resilience

The business world is constantly changing. Untapped markets, new competitors and evolving bring fresh challenges. Legal teams must stay ahead of these changes and keep contracts current and compliant. 

Adaptability is key for organizations to survive and thrive. Dynamic market conditions caused by geopolitical conflicts or economic fluctuations require swift action. The business landscape can shift in an instant, sometimes because of a single social media post. CLM forms part of an agile and responsive corporate strategy. 

9. Frees up resources

Contract lifecycle management involves stakeholders in many departments, from legal to financial. Painstaking manual processes can have legal teams dotting i’s and crossing t’s instead of focusing on high-value work. 

CLM saves resources by automating tasks, contract creation, simplifying workflows and organizing data. This cuts down on repetitive work, so employees can focus on more important tasks. Easy access to information saves time searching and automated checks help avoid mistakes. Insights from data analysis support better decision-making, reducing the need for manual analysis. As a result, valuable legal and other staff can focus on strategic projects. CLM’s digital, automated approach frees up your team to focus on what matters most. Greater efficiency and happier employees? Now that’s a win-win. 

10. Uses a “data-first” approach

A well-implemented CLM platform prevents revenue loss and unlocks valuable business intelligence. Deliverables are only a small part of contract language. The majority of contracts contain untapped analytical potential. CLM enables access to this information, providing critical insights for strategic decision-making. 

CLM uses a “data-first” approach to contract lifecycle management. Data-first means starting with the data you need and then making a contract based on it. There are two types of data captured — descriptive and dynamic. Descriptive data reflects reality, such as contract expiry dates. Dynamic data highlights what works and what doesn’t, for example, the efficiency of the contract process.

Here are the characteristics of a data-first CLM solution:

• Promotes a “Data-First, Contract-Second” approach, capturing, exposing and syncing contract data with other enterprise systems.
• Focuses on CLM as a real-time record system, ensuring that other applications can access each data item. Every contract data element has an IP address.
• Offers robust extraction that bridges legacy and third-party contracts.
• Features an extensible data architecture supported by tools that non-IT professionals can use in an agile manner.
• Shifts from personal/professional productivity applications to a real-time, persistent system of record. It views CLM and contract data as a continuous process rather than a set of snapshots in time.  
• Supports core maturity model capabilities. These functions include workflow automation, authoring automation, contract intelligence and data extraction.
• Requires minimal training for users and no IT experience for admins.
• Easily integrates external and in-house AI platforms.
• Proven record of rapid, cost-effective implementations across various functions.
• Provides documented best practices, case studies and customer references for CLM adoption.

Unsurprisingly, 70% of organizations in the EY Law Survey have a contracting technology strategy. As businesses seek to optimize contract efficiency and reduce costs, a robust CLM system offers an appealing solution. 

A final word on CLM

CLM technology is crucial for efficient business operations, offering a clear way to manage contracts from start to finish. Through CLM platforms, organizations can improve efficiency, reduce risks and comply with legal requirements. Technology enhances contract management by automating tasks, boosting teamwork and providing data analysis. CLM platforms maximize contract value and foster successful partnerships in complex markets. Embracing CLM simplifies operations and supports growth and competitiveness.

As technology advances, CLM becomes even more integral to contracting, solidifying it as a critical tool for success.

Find out how Agiloft’s top-ranked CLM platform can help your organization solve its contract challenges. Schedule a custom demo today and unlock your organization’s CLM potential!