What Is CLM Software? Contract Lifecycle Management Explained

Finding specific language in a contract can be exceedingly time-consuming. Imagine how long it would take to review a dozen contracts each week.

Fortunately, CLM software streamlines every aspect of the contract lifecycle, leaving you more time for other activities. But exactly what is a CLM?

Contract lifecycle management software simplifies document drafting and contract execution by automating many contract-related activities. In this guide, we’ll explain how contract lifecycle management solutions can help your business save time and money.

Benefits of contract lifecycle management

If you need help keeping track of contract documents, finding specific contract language, or staying on top of compliance requirements, CLM software can help. Here are some significant contract lifecycle management benefits:

• Improved contract visibility: CLM software makes viewing and managing contracts easy. You don't have to worry about wasting time tracking down a document or searching for a specific clause.
• Enhanced compliance: Every contract contains performance obligations — promises to deliver goods or services. You could be in hot water if you don't follow through on these obligations. Contract lifecycle management software has many features to help you comply with the commitments outlined in every contract.
• Improved risk management: Once you create a contract, you must periodically review it to identify sources of risk. High-quality contract lifecycle management solutions track scheduled review dates and apply contract updates.
• Reduced costs: Because CLM software automates many aspects of the contract lifecycle management process, it reduces the expenses associated with contract execution and compliance.
• Enhanced collaboration: Paper or locally stored contracts make teamwork more challenging. Members must wait for a colleague to finish their edits or approve the latest version, slowing down the entire process. By improving contract visibility, CLM software makes collaboration easier.
• Advanced analytics capabilities: CLM software comes with advanced data analytics, making it simple to determine the status of every active contract. You can even set up reporting dashboards to track deadlines.

7 steps in the CLM process

Each step in the CLM process is critical in ensuring your company effectively manages risk, complies with all performance obligations, and negotiates the most favorable contract terms.

Here are the primary steps in contract lifecycle management:

1. Planning stage

You must first develop a CLM strategy based on your company's needs. During this stage, you assess your current resources and determine whether you need additional labor or capital to execute the CLM strategy.

2. Implementation stage

This is where the rubber meets the road. It’s time to take the strategy developed in the first step and create a contract management process to match. This involves regular meetings to share updates and keep everyone up to date.

3. Pre-contract stage

Next, it’s time to create, negotiate, and execute your contracts. Contract creation involves drafting an agreement with the following details:

• Start and end dates
• Performance obligations
• Contingencies
• Expected milestones
• Pricing

During the negotiation stage, you may need to meet with the other party several times before coming to an acceptable agreement. After negotiations, everyone reviews the contract, suggests additions or deletions, and then reviews the final version. The final step in this stage is to execute the contract, requiring someone from each organization to sign it.

4. Handover stage

Contracts have many moving parts, so it's vital that team members understand their roles and responsibilities. The handover stage provides an opportunity to clarify contract details and ensure everyone has the necessary resources to fulfill their obligations.

5. Contract stage

Contracts require active management — tracking milestones, fulfilling performance obligations, monitoring amendments, and performing periodic audits to assess contract-related risk. Those activities take place during the contract stage.

6. Pre-renewal stage

In the pre-renewal stage, you review the contract and determine whether to renew or terminate it. Think carefully about the terms of the agreement and your company's ability to fulfill the same performance obligations in the future.

7. Post-contract stage

During the post-contract stage, you verify that stakeholders met their performance obligations. The lifecycle ends with a contract post-mortem, which identifies what went well and needs improvement.

Integrating CLM software with business processes

Once you have integrated the application, CLM software facilitates other business processes by verifying data and ensuring its consistency across the entire organization.

With CLM software, you don't have to worry about data from one application getting mixed up with data from another. A CLM system pulls data from several sources, ensuring the utmost data integrity in every department.

Integration provides two primary benefits: First, CLM software improves data compliance and ensures commitment to legal and regulatory standards. Second, implementing a CLM system eliminates the organizational silos that hamper collaboration.

When employees in every department have access to the same information, they can work together to solve contract-related challenges.

Contract lifecycle management best practices

To make your new CLM strategy a success, follow these contract lifecycle management best practices:

• Choose a solution that allows seamless collaboration. Your new CLM system should let all stakeholders — from employees to customers — retrieve contracts, search for specific language, and view critical milestones.
• Start slow and ramp up. Instead of changing every aspect of your current process, identify a few workflows that could benefit from CLM software. Initiate the automation process in those areas before moving on to something else.
• Find a system with flexible workflows. Your needs will likely change over time. You don't want to be locked into a system that can’t grow with your business.
• Assess its compatibility with other business systems. If you wish to continue using legacy systems, you'll need a CLM that's compatible with what you already have.
• Choose a system with a clause library. Many contracts contain similar provisions. Instead of typing the same thing over and over, look for a CLM with a clause library, which allows you to add standard legal clauses with a few keystrokes.
• Provide ample training. Although many CLM systems have intuitive interfaces, you still need to train team members to use your new tool effectively.
• Communicate the adoption plan to all stakeholders. Employees are more likely to embrace a new system if they feel included in the planning process. Once you choose a software package, create an adoption plan explaining what will happen, when, and how it will affect each department.
• Keep support staff on hand. Once you implement a CLM system, employees will need ongoing support. If your IT team doesn't have the bandwidth to help, look into hiring a new employee or bringing in a consultant.

Streamline contract lifecycle management with Orderful

Orderful offers a modern electronic data interchange (EDI) solution that integrates seamlessly with other business software, including CLM systems, PLM platforms, and more. EDI lets you automate essential communications between you and your partners.

Contact us to speak with an expert and learn how our modern EDI solutions can enhance productivity at every stage of the contract management lifecycle.