A business contract is more than just a list of rights and responsibilities. Corporate assets need management and assessment. Contract lifecycle management can also save money and enhance business practices.
How should your firm utilise contract lifecycle management (CLM)?
What’s involved in contract formation, management, and renewal? Let’s examine essential points:
- Advantages of contract lifecycle management
- CLM system steps
- How technology can streamline this process
Contract lifecycle management
Contract lifecycle management accelerates contract formulation and approval, codifies document storage and retrieval, and evaluates and renews contracts based on accepted criteria.
Implementing CLM enhances contract administration and guarantees that every contract your company enters meets high criteria and receives cost and risk approvals.
CLM’s 6 growth-minded benefits
A contract lifecycle management solution goes beyond document storage. Businesses may improve their procurement function, make better decisions, and boost profitability by using the right vendors to meet their needs safely and effectively with the proper technology.
Implementing a CLM system has many benefits:
- Streamlined purchasing: Tracking contracts produces a repeatable, scalable purchasing procedure. We reduce email-based purchasing bottlenecks and other difficulties.
- Cost savings: Contract management involves departmental approvers in every purchase transaction. With more transparency, your company can make better purchasing decisions and assure cost-efficiency and security in each transaction.
- Support for strategic sourcing: CLM control helps teams to review vendor relationships and optimise their vendor pool into a preferred list of high-quality providers.
- Lower third-party risk: Vendor evaluation and strategic sourcing reduce external risk. Knowing your vendors and monitoring contract performance reduces difficulties and fraud.
- Legal compliance monitoring: By monitoring vendor performance, you monitor contract compliance. Regular vendor evaluations ensure suppliers follow all agreement clauses. Compliance tracking is automated, freeing up your legal team’s time for other activities.
- Better expenditure analysis: Your purchasing system’s abundance of contract and vendor data is now available for usage. Better spending decisions, budget alignment, and cash leak reduction can be achieved by spend analysis.
9 essential contract lifecycle management steps
A contract lifecycle management system should be easy, effective, accessible to stakeholders, and instructive for all departments.
From start to finish, the CLM process has 9 steps:
1. Purchase request
Business needs are identified by stakeholders. They submit an intake form or purchase requisition for the necessary items after researching and assessing the possibilities. Requests start approval processes. In a procurement management solution, the software directs the form to the right department heads and decision-makers for approval. The finance or procurement department begins contracting after the purchase is approved and a vendor is chosen.
2. Contract making
Based on investigation and requisition, the procurement team will write a buy contract. The contract should specify quality, quantity, and deadline. Security, finance, and legal department non-negotiables should be included. CLM systems can generate AI-generated contract workflows to simplify contract authoring.
3. Negotiate
The buying team and vendor will negotiate the contract conditions to satisfy both parties. After vendor parameters are finalised, the contract is available for approval.
4. Order approval, fulfilment
Finance and buying approve the purchase and send it to the vendor. The vendor fulfils orders. After the buyer receives and reconciles the order, accounts payable three-way matches, approves the invoice, and pays.
5. Managing contracts
The contract is coded and tracked in a central repository after purchase approval. Putting each contract in a notification system helps the team prepare for milestones, track progress, and do due diligence before renewal.
6. Retrieve
Internal stakeholders can research the contract if questions arise. A contract lifecycle management system creates a searchable database of vendors and contracts, making audit trails and agreement reviews easier.
7. Analysis, reporting
Finance and procurement assess all contracts’ spend, budget, and utilisation. Reporting and analysis aid budgeting, purchasing, and vendor and product selection.
8. Risk and compliance
In the event of concerns or frequent internal auditing, system contracts are assessed to ensure compliance and reduce third-party procurement risks like fraud. Every contract on the site is reviewable.
9. Offboarding/renewal
The procurement staff researches contact renewals as they approach. This may involve compliance assessments, price updates, or buyer usage adjustments. The team can make educated contract renewal, adjustment, or termination choices throughout this review time. For future analysis, the system can record the reasons and details of a vendor termination by the customer.
CLM software simplifies management
Companies may handle hundreds of vendors and thousands of contracts annually. With regular renewal dates, new purchases, and service tier changes, organising and tracking all the data might overburden a legal or accounting department.
By centralising digital data, streamlining notifications, and offering thorough analysis and reporting, contract lifecycle management software may simplify CLM.
Your team can streamline workflow with the correct CLM software:
- Contract and purchase order generation and transmission automatically
- Templates for repeat contracts
- Monitoring new contract internal approvals
- Looking up vendor and contract information in the system
- Creating renewal notice and due diligence systems
- Monitoring compliance or risk with technology
- Managing vendor onboarding, management, and offboarding
As your firm adds vendors, procurement functions, and spending, a vendor management solution or CLM software makes contract management easy to scale.
