Contract Management, also known as Contract Lifecycle Management ( CLM) is the management of the company’s contracts from creation through execution to renewal/expiry. These contracts can come from vendors, partners, customers, and employees. Contracts can be Sales Contracts, Licensing Agreements, Service Agreements, Non-Disclosure Agreements ( NDA ), Employment Agreements, Government Contracts to name a few. Digitizing and automating contract lifecycle management is one of the key aspects of Digital Transformation. Contract Management is the backbone of the quote-to-cash process.
Stages in CLM
Request for a new contract can originate from Sales Teams either for new contract, amendment, or renewal. Typically in an enterprise, the Legal department is responsible for generating the contract either standard or custom specifications. Contracts are created using authoring tools and templates to include all request points, terms, and clauses.
Multiple parties are involved in the negotiation phase to discuss/debate what final terms and clauses need to be incorporated. This is a collaborative effort that involves back and forth communication and various versions of the document need to be tracked.
Once the contract terms are finalized, it needs to be approved by all the parties involved. Depending on the size of the contract and size of the company, there could be many people involved and also would involve a hierarchy of approval process. People involved could be Legal, Executive, stakeholders, internal team members, and customers.
Digital signatures are needed to sign digital documents. The correct authority needed to sign contracts needs to be defined. These rules could be based on the type of contract, amount, location, and other variations. Once the contracts are signed, they have to be appropriately stored for easy access and search.
Until the contract is signed, nothing is real
Once the signed contracts are in place, communicate to all concerned parties - obligations involved, milestones, deadlines, and penalties.
This phase involves overseeing and reporting on performance, handle claims and disputes, negotiate and record changes. Also, contract execution has to be closely monitored for any signs of non-compliance.
Many contracts have end dates which the parties need to track to decide the next steps - lapse, renew, or renegotiate. If the work is of a recurring nature, the contract should not be allowed to lapse and needs to be renewed. Renewals typically go through almost the same stages of lifecycle like a new contract, but with much less rigor.
Contracts that have end dates need to go through the termination process identifying any ongoing obligations. Concerned parties have to be communicated about the contract ending.
What is Contract Management Software?
Contract Management Software helps to manage and automate the various processes within CLM. In addition, it helps to store and manage the contract repository which is critical for
E-contracts. Contract Management is not a standalone activity. It is very much intertwined with quoting and revenue generation processes and legal functions. For Sales, contract management is used to automate and enable faster, more accurate production and delivery of legal-approved contracts to a company’s prospects or customers.