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Contract Lifecycle Management (CLM): Definition & Explanation

Year 2024
August 2024
Contract Lifecycle Management (CLM): Definition & Explanation
01 Aug 2024

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Imagine contract management without the help of any software – it is an endless cycle of paperwork, numerous e-mails and constant concern about a deadline. This is the harsh reality for many businesses in today’s competitive environment. Contracts are the foundation of business transactions, so their administration needs to be done right to avoid significant consequences like financial losses and reputational damage. The good news is there’s a solution to all these challenges called Contract Lifecycle Management or CLM, a strategic approach to managing contracts from inception to the time they are renewed. 

Table of Content

What is Contract Lifecycle Management (CLM)? 

Contract Lifecycle Management can be defined as the business approach of handling a contract right from the initial stage of creating the contract document, signing and negotiation of the contract terms, efficient approval of the signed contract, contract implementation, monitoring and management, review and renegotiation and finally contract renewal or termination. It seeks to achieve the following goals: Simplification of responsibilities with regard to contracts, achievement of compliance, and minimisation of risks. 

Key Stages of the Contract Lifecycle

  • Creation: At the creation stage, drafting contracts by following templates and standardised clauses makes it easier and maintains compliance. It refers to the identification of the requirements of each party and lays down terms and conditions. For instance, a service contract in a technology firm may comprise of subsections such as data, service and terms of termination. 
  • Negotiation: In the negotiation stage, various individuals assess the contract documents and make amendments to the content. This can be a complex process involving several rounds of revisions. For instance, a procurement contract may need input from legal, finance, and the purchasing department. 
  • Approval: The approval stage involves circulating the contract to the right approval authorities. This can be made easier through automated workflows which could route the contract to the respective official depending on the laid down rules. For instance, a contract worth $1m would still need approval from senior management while a contract worth $100 000 only needs approval from the head of department. 
  • Execution: Contract aggregation and signing can have more than two participants. Electronic signature solutions facilitate this process as signees can sign documents from any location of their convenience. After the execution of contracts, they are safely archived so that the organisation can easily retrieve them whenever they want. 
  • Management: The management stage refers to monitoring of contract developments as well as the extent of contract compliance. This means reporting on activities, plans, templates, objectives, targets, and performance especially in relation to dates, deliverables, and other obligations. And it is also necessary to rewrite the contract if there are changes in terms or content of the agreement. 
  • Renewal/Termination: The renewal process involves strategic decisions about whether to continue, renegotiate, or terminate the contract based on performance and changing business needs. 

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Benefits of Using a Contract Lifecycle Management System 

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Adopting a CLM system offers numerous benefits specifically tailored to contract management processes. Here are some key advantages: 

Enhanced Compliance

  • Regulatory Adherence: Automates contract compliance checks and audits the documents to confirm that contracts adhere to the applicable industry laws as well as the company’s policies and procedures. 
  • Audit Trails: Keeps exact records of all activities related to the contracts which include compliance with the regulations and internal checks. 

Risk Mitigation

  • Proactive Management: Reduces the risk of errors, missed deadlines, and non-compliance with automated alerts and reminders. 
  • Centralised Data: Centralises all contract data, reducing the likelihood of misplacing critical documents and ensuring quick retrieval when needed. 

Operational Efficiency

  • Streamlined Processes: Reduces manual processes involved in creating contracts, routing approvals, and executing contracts from staff’s work plans, allow them to engage in more important functions. This can help shorten contract cycles and reduce paperwork. 
  • Integration with Existing Systems: Connects with current ERP systems, making sure that contract information is perfectly coordinated with all the corporation procedures. This reduces the creation of data silos and increases general efficiency. 

Improved Visibility

  • Real-Time Insights: Provides real-time insights into contract status, key milestones, and performance metrics through dashboards and reporting tools. This enables proactive management and timely decision-making. 
  • Centralised Repository: Stores all contracts in a centralised repository, ensuring easy access and enhancing collaboration among departments. 

Cost Savings

  • Reduced Legal Fees: Minimises the need for extensive legal reviews by using standardised contract templates and clauses. This can lead to significant cost savings over time. 
  • Efficiency Gains: Streamlined processes and reduced manual intervention result in lower operational costs and increased profitability. 

Enhanced Collaboration

  • Cross-Departmental Coordination: Facilitates collaboration among departments such as legal, finance, and procurement by providing a unified platform for contract management. This enhances communication and helps in avoiding misunderstandings in the contract requirements and clauses. 
  • External Collaboration: Enables secure collaboration with external parties, such as suppliers and customers, through controlled access and sharing features. 

Read more: Choosing the Best Equipment Rental Software for Your Business 

How Synergix ERP Integrates with Contract Lifecycle Management

Synergix ERP seamlessly integrates with dedicated CLM systems or offers built-in CLM functionalities, particularly for the Rental & Service industry. 

Centralised Repository

  • Unified System: Manage all contracts in one place, ensuring easy access and organisation. This reduces the time spent searching for documents and enhances collaboration among teams. 
  • Enhanced Security: A centralised repository ensures that contracts are stored securely, with access controls to protect sensitive information. 

Automation

  • Tracking Milestones: Automatically track contract milestones, ensuring no off-hire or billing is missed. For example, the system can automatically generate invoices based on contract terms, reducing the risk of billing errors. 
  • Workflow Automation: Automated workflows ensure that tasks are completed on time, reducing delays and improving efficiency. 

Enhanced Service Delivery

  • Real-Time Information: Provide professional services based on real-time information, improving customer satisfaction. For instance, real-time tracking of rented equipment ensures timely maintenance and service delivery. 
  • Customer Portals: Customer portals allow clients to view contract status and service history, enhancing transparency and trust. 

Increased Revenues

  • Efficiency Gains: Reduce operational costs and enhance recurring revenues through efficient contract management. Streamlined processes and reduced manual intervention led to cost savings and improved profitability. 
  • Scalable Solutions: Scalable solutions support business growth by accommodating increasing contract volumes and complexity. 

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Conclusion

Contract Lifecycle Management is a must-have resource for organisations that aim at increasing business productivity, decreasing overall risks, and maintaining contract compliance. By automating and streamlining each stage of the contract lifecycle, CLM systems provide a comprehensive solution that addresses the issues that contract management faces today. Synergix ERP with integrated CLM functionalities offers a robust solution, enabling seamless contract management, improved data accuracy, and enhanced service delivery. By adopting Synergix, businesses can experience significant improvements in operational efficiency and customer satisfaction. 

Ready to revolutionise your contract management? Try the Synergix Technologies software demo today and witness the transformation firsthand. 

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