Contract Lifecycle Management (CLM) has recently gained more prominence among global business organizations, with the pandemic catalyzing a significant change in business dynamics. A contract is not just a mere legal document with a set of clauses and mandates to deliver a business. It is the pillar supporting the relationship between a company and its clients, partners, vendors, and suppliers.
The true purpose of CLM is indeed quite vast, which includes minimizing risk, ensuring compliance, and maximizing revenue. Considering the importance of contracts in achieving business success, the need to adopt the best practices for effective CLM cannot be ignored. This article by our CLM expert is an effort to supplement an organization’s endeavor to ensure maximum gain from adopting a time-tested process.
1. Evaluate your current CLM process: Knowing where you stand in terms of your process and system will provide a clear understanding of the challenges you currently encounter, the shortcomings in the existing method, and the areas of improvement. This exercise ought to be comprehensive, covering every phase of your contract management process. It should ideally begin with contract request, progressing to reviewing, approval, execution, archival, management, auditing till the renewal/disposition phase. For instance, track the average approval time for contracts because the shorter the approval cycle, the better the client-vendor relationship and the faster the production process.
2. Define KPIs for contract management: To measure the success of a contract, setting the performance indicators is elemental. While setting KPIs for contracts management, some of the areas you can focus on are ACV (Annual Contract Value), change in the value compared to the original contract, quality issues resolved, non-compliance of industry standards, and risks associated with vendor partnership. Defining relevant, measurable, and achievable KPIs attuned to your business objectives will set a clear goal for the entire organization.
3. Create a schedule for compliance review: Adhering to the State and industry regulations is a mandate. But the standards and policies are prone to modifications to be in tune with the prevailing business trends. And, your contract should reflect the recent changes in regulations. Failing to comply with the defined norms means a breach of compliance, heavy penalties, and unanticipated loss. Therefore, compliance review should be an integral part of your contract management process.
4. Explore the merits of CLM digitization: The first step towards technology adoption is to identify your business-specific needs. Or rather, define the goal of digitizing your contract management, such as creating a secured contracts storage system and enabling easy access/retrieval for authorized users. Once you have figured this one out, your next move is to assess the various CLM software solutions available. The list of requirements you have identified will make the process of narrowing down the right tool easier. But your search doesn’t end here, as there are several nuances that you should be familiar with. With a CLM consulting partner, the entire process can be simplified, and be assured that your team will be provided a ready-to-work Contract Management System (CMS). Would you like to know how the CLM Consulting service can help?
5. Build a centralized contracts repository: In an expansive business setup, contracts are created by multiple teams and archived in desktops or a physical storage unit. This makes searching and retrieval of similar contracts existing in an organization impossible. A major snag with this methodology is the high chance of missing key deadlines, such as renewal dates or delivery timelines. A centralized CMS is an ideal solution to overcome all the challenges that could cost a company’s reputation and cause huge revenue loss. You can partner with a CLM outsourcing expert for the right guidance on sourcing all the contracts spread in disparate enterprise systems.
6. Standardize/templatize contract creation: A defined content flow in contracts can enable remarkable time savings and expedite the contract approval process. A boilerplate indicating what information should be added under which section will provide clarity across your team. It will also have room for necessary customization, such as pricing, timelines, and renewal schedules. The standardization also helps in ensuing language consistency, use of the right legal terms, retain the default conditions and terms across all contracts in your organization. This will leave no space for ambiguity, save the time spent reviewing the entire document, and focus only on the exclusive section in the contract.
7. Chart a workflow for contract management: Contract management encompasses several stages. To streamline the end-to-end process for better compliance and success, define and document the entire process flow. By automating your contract workflow, you will get to define the next process to follow and get the contract assigned only to the respective stakeholder as per the workflow. This way, you are guaranteed a seamless flow of contracts, completion of tasks on time within the specified budget. It bolsters your relationship with the client, assures Annual Recurring Revenue (ARR), and as well unlocks new opportunities through up-selling or cross-selling.
8. Harness a robust tool for contract negotiation: Review and negotiation are a key part of contract management. It is a time and labor-intensive task but helps in ensuring high-level contract accuracy. Artificial Intelligence (AI) enabled contract negotiation is the trend today. With the redlining option, it eases the task of identifying newly added information by each contributor. A huge time saving, better data accuracy, and adherence to timeline are some of the merits of automating contract negotiation with AI.
9. Enable seamless tracking through automated alerts: Manual tracking of every contract for timelines and renewals is laborious and not fool-proof. Imagine skipping a deadline due to an oversight and the financial loss you might encounter. These errors are a thing of the past with a centralized digital contract repository. It allows you to set automated alerts for accurate tracking, delivery of obligations, and timely communication to all the stakeholders as specified in a contract.
10. Measure the cost of CLM: A lack of defined metrics to measure your CLM’s ROI can result in unjustifiable expenses and ambiguity on the potential saving opportunities. It neither helps in manifesting individual accountability nor necessitates a system upgrade to amplify the CLM process. Building a robust CLM landscape with quantifiable metrics on profits, losses, and penalties is rudimentary to maximize revenue and minimize business risks.
That’s a wrap. Reading through the best practices discussed above might have overwhelmed you. But with our experts’ help, you can effectively address the issues encountered by your current CLM system. Cenza has been offering Contract Management services for over a decade now, partnering with CLM software providers (Ironclad, Contract Works, Leverton, Kira, etc.).
It is indeed a big decision to automate your contract management process with CLM software. Here is an article detailing the challenges in designing an effective contract management process. It also illustrates how Cenza and our tech partners collaborate to deliver a seamless CLM deployment experience. Hope it gives you a vivid picture of our time-tested CLM implementation methodology and the benefits of liaising with an outsourcing specialist.
If you would like to explore further how Cenza can help, please get in touch with us.