What is contract lifecycle management (CLM)?
Contract lifecycle management (CLM) is defined by Gartner as the “applications used for managing contracts from initiation through ongoing management and eventual renewal or termination.” Put simply, CLM is the process and tools used to prepare, sign, record, and execute your business agreements.
Contract lifecycle management automates and streamlines contract processes during key stages, helping procurement teams speed up the administrative side of purchasing while staying compliant. Strong contract management is more than just filing legal documents. Proactively managing the different stages of the contract lifecycle can help procurement teams drive performance, improve efficiency, and lower costs.
Stages of contract lifecycle management
Executing contracts is a relatively predictable process. Formalizing the stages in contract lifecycle management allows businesses to identify bottlenecks and implement digital solutions that can help speed the process along. Contract lifecycle management begins by bringing transparency to the internal process of initiating, approving, and executing contracts.
Stage 1: Create a contract
The creation of the contract is the first step in every contract management process. This stage includes drafting and sourcing information required to complete the contract. Here, organizations should consider how implementing templates or using an existing version of a document as the basis for renegotiation can save time and reduce errors. Likewise, procurement teams should consider how storing templates and drafts in one central location can make it easy to copy and adjust the agreement’s terms and add new information, such as the supplier name, pricing, and product details.
Stage 2: Routing and negotiating
Next, the contract gets sent for editing, negotiating, and approval by internal and external stakeholders. This is usually the most time-consuming part of the contract lifecycle — and the stage where tools like Fairmarkit can help. Moving your contract management out of email and into a sourcing and procurement platform allows for the automation of contract management workflows.
Likewise, procurement teams should seek to store contracts in a central location during the routing process. If a contract is not stored in a central location—if the people who need to can’t access it—then it doesn’t matter how good the agreement is, because no one will know if it is being enforced or not.
Stage 3: Sign the contract
Once every party is in agreement, the agreement is signed — ideally, with electronic signatures. Digitizing signatures makes it easy to execute documents from anywhere, critical for organizations that have shifted to working remotely.
Stage 4: Execute the contract
Moving the contract forward means integrating the agreement with your other systems. For instance, once the contract is signed it should trigger an action: an e-signature on a procurement agreement would lead to the creation of a purchase order, for instance. Digital tools can continuously automate the administration of the contract agreement, reducing friction in the process and keeping the workflow moving with minimal oversight.
Stage 5: Store the contract
Once a contract has been executed, there’s still work to be done. Procurement needs to ensure all obligations have been met to the correct specifications, at the appropriate performance levels—and on time. They need to make sure payments are made and that all the books are in order. Above all, they need to make sure that the business’s goals and objectives have been met.
The final stage is to store the executed agreement in a centralized, searchable location where it can be accessed if needed. Storing documents helps keep teams accountable for spending, empowering procurement teams to stay on top of tail spend and maverick spend. It also helps keep the organization compliant and reduce risk.
Benefits of CLM
More than 50% of businesses say that the agreement approval process is their biggest challenge within contract management. Digitizing the contract lifecycle with tools like Fairmarkit can help take the admin out of contract management. “By creating a common language, core templates, unified terms, and repeatable, consistent conditions buyers and suppliers save time and reduce errors,” wrote SAP Ariba. “Most contract management software is designed to provide greater visibility into corporate spend, create greater efficiencies in the contract process, and lower administrative costs.”
Likewise, Fairmarkit can create one central hub for all contract management information. By combining our RFQ and RFP capabilities into one, consolidated platform, Fairmarkit provides a central source of information on your sourcing activity and provides structured reports for greater visibility into spend activity. Contracts are maintained in a contract management system, making it possible for procurement professionals to access the information needed at any time.
To learn more about contract lifecycle management, check out our blog, The Source.