What is contract lifecycle management (CLM)?
Contract lifecycle management (CLM) is the process of tracking and managing a contract through the various stages of its lifecycle. An effective CLM solution streamlines the contracting process while aiding in improved productivity, better governance, minimized revenue leakage, and risk mitigation.
Why contract lifecycle management (CLM) is important
Contracts touch every business department, including sales, finance, procurement, HR, and of course, legal. They govern every dollar that flows into the business. Thus, poor contract management can lead to high financial loss. Recent research conducted by World Commerce and Contracting shows that poor contracting costs companies 9% of their annual revenue.
Apart from the financial aspect, an efficient contract management system is critical for the following reasons:Benefits of contract lifecycle management (CLM) software
In addition to solving the above mentioned problems, a modern CLM system also offers the following benefits:Streamlined processes: CLM software improves productivity by streamlining the contracting process. From contract authoring to execution, the process flows seamlessly with automated approval workflows, smooth negotiation, and an effortless digital signature process. This saves time on paperwork and lets your employees focus on closing more deals and other vital tasks.
Better visibility: A modern CLM system improves visibility with a central repository to store all company contracts. It also offers advanced search and filter options that facilitate quick access to contracts.
Risk mitigation: A study by KPMG found that stakeholders do not adhere to nearly 70% of executed and active contracts! These unfulfilled obligations can impact a business legally and financially and cause damage to its reputation. Modern CLM software offer a granular obligation module that aids in risk mitigation by allowing contract owners to assign and track obligations at the individual contract level.
Minimized revenue leakage: While a company loses 9% of revenue annually due to poor contract management, it loses anywhere between 17% and 40% of the value on a single deal due to inefficient contracting, estimates KPMG. Employing a CLM system can plug this leak with features such as automated alerts for renewals, auto-generated renewal letters, obligation management, and advanced analytical insights in the form of reports that help refine your contracting process.
Improved compliance and governance: With the business landscape becoming highly regulatory, the emphasis is on compliance. CLM software can help your business improve compliance by offering admins more control and visibility over the company's contracts through activity logs that help track user actions and downloads. Meanwhile, advanced data protection settings, configurable approval workflows, and the central contract repository in a CLM system help with improved governance.
Does your business need a contract lifecycle management (CLM) system?
Over 80% of World Commerce and Contracting members have plans to implement contract automation. What about your business? Ask yourself these questions to gauge whether it is time for you to invest in a CLM system:
- Is your team investing most of their time in paperwork instead of focusing on high-value tasks and strategic initiatives?
- Do you have multiple templates for the same contract type for minor tweaks in the nature of the agreement?
- Are you storing and managing your templates from disparate folders? If so, is it easy to know if your team is using the latest template version?
- Does the absence of a central clause library with approved languages result in multiple approval cycles?
- Do you find it hard to keep track of changes during negotiation cycles and compare between versions?
- Do you still go through the email, print, sign, and fax/scan cycles for execution?
- Have you ever lost a business deal or a sales opportunity due to lengthy contract cycle times?
- Do you include operational costs involved in contracting as part of spend under management (SUM)?
- Is it easy for you to quickly locate an active or terminated contract?
- Do you have a simple way to track your contractual obligations and ensure fulfillment?
- Are you using multiple applications to manage your contracting process end-to-end?
- Have you ever missed renewal opportunities due to the absence of automated alerts?
Points to consider when investing in a contract lifecycle management (CLM) tool
CLM software has evolved over the years. While these systems initially focused on creating and executing contracts, today, many emphasize obligations and post-execution contract management.
According to a study published by Forrester in February 2021, three things customers should keep in mind while choosing a CLM solution are:- Solid features for the post-execution phase to help companies manage the obligations and entitlements that come with contracts.
- Analytics and reporting capabilities to help CFOs, CEOs, and chief risk officers gather insights about how external factors impact finances and business operations concerning contracts.
- Well-developed AI functions to help clients with contract drafting, risk assessment, analytics, and reporting.
Flexibility and scalability: Ensure the CLM software is customizable to suit your business needs, as this flexibility is the foundation for scalability.
Data protection and privacy: With government regulations emphasizing data privacy and security, look for features that help you stay compliant with these regulations.
Cloud storage: Modern businesses have already adopted cloud-based systems for their business contracts. This allows for a smooth contracting process, as data can be accessed quickly from anywhere.
Mobile app: While all the data in a CLM solution is usually available on the cloud, it is always good to have a mobile application that lets you approve and sign contracts on the go.
Ease of use: A CLM solution might have all the futuristic features you desire, but if it is not user-friendly, adoption by stakeholders will be challenging. This is usually the biggest hurdle you face when championing the cause of contract automation, so it's best to look for software that both offers the features you need and is easy to use.
Cross-functional collaboration: Ensure the CLM solution promotes cross-functional collaboration between the various departments a contract touches. It should help non-legal teams create and share contracts faster and take the load off the legal team through standardization and self-serve models.
What is the ROI of a contract lifecycle management (CLM) system?
- Aspect ROI
- Speed Faster authoring due to standardized templates and self-serve capabilities Shorter approval cycles through automated approval workflows Improved turnaround times (TAT) with seamless online negotiation Execution in minutes with digital signatures Automation in document generation during post-execution, enabling faster amendments or renewals
- Risk Clause library with approved and latest clause languages reduces risk of errors during authoring Collaboration, peer-review, and approval matrices further reduce errors Extensive obligation management mitigates risks from unfulfilled obligations Granular activity tracking at user, contract, and organization level improves visibility and compliance Advanced data protection settings with detailed data logs mitigate non-compliance with data protection regulations
- Value Reduced value erosion at each stage of the contract lifecycle Deep strategic insights from contract data and metadata
- Profitability Reduced legal dependency and costs Shorter contract cycle times translate to faster revenue recognition and increased revenue Reduced operational costs Advanced analytics strengthen procurement processes