What is Contract Lifecycle Management?

Contracts are vital tools to help protect a business from risk. Their early consideration, drafting and management are critical. Contract Lifecycle Management (CLM) is a helpful process that enables your business to manage its contracts efficiently and reduce risk. Covering every stage of a contract’s life (from the initial drafting and negotiation to delivery and performance monitoring, and ultimately termination), managing contracts within CLM can help your business in many ways. This article explores why contracts are essential and how CLM efforts can support your business.

Why are Contracts Important for Your Business?

Contracts form the foundation of your business relationships, defining the roles and responsibilities of all parties involved in a project.

Contracts can also help provide financial stability. By clearly setting out your payment terms, contracts give your business a way to get paid and can include various remedies, such as the right to stop your services if clients fail to pay on time.

Contracts also help manage risk by limiting your liability, and they help ensure your business complies with specific legal rules, such as data protection laws and the mandatory requirement to have data processing terms in certain situations. However, contracts alone do not ensure compliance; your organisation remains responsible for meeting legal standards.

What Does Contract Lifecycle Management Involve?

Contract Lifecycle Management (CLM) is a process that helps your business manage its contracts effectively and smoothly. It typically covers a process for different stages of a contract lifecycle, including:

• drafting and negotiation, at which stage your business should ensure its contract terms are clear, enforceable, and meet your strategic needs. This could involve using standard contract templates and a clause library;
• once both parties sign, the contract becomes legally binding, and your contractual obligations kick in. Storing contracts securely and in an easily accessible contract repository is crucial so you know where they are should you need to find them. A contract management system simplifies document management by providing fast access and keeping documents well-protected;
• performance monitoring requires your business to meet all contract obligations. For example, you should keep track of whether you have met all your delivery dates on time; and
• you should also consider reviewing contracts before they expire to decide whether to renew, renegotiate, or terminate them. If you need to change the terms, it is essential to manage these changes smoothly with your counterparties.

How May Contract Lifecycle Management Benefit Your Business?

A structured approach to managing your contracts can improve your business operations and reduce risk.

Effective CLM minimises risk by ensuring you closely monitor your contractual commitments and meet your obligations. Proactively managing contracts will also mean your business is better prepared to handle disputes or address compliance concerns.

Operational efficiency is another crucial benefit. Centrally storing and managing contracts can save time by eliminating the need to search for documents or manually track deadlines. A unified workspace for contracts can also streamline collaboration between legal teams and other departments.

Key tools such as automated contract reminders can allow your staff to focus on strategic tasks and save time and resources.

Financial management could also improve under a robust CLM system. Understanding critical payment deadlines across your projects can help your business manage its cash flow better and avoid costly errors.

How Can Your Business Start Implementing CLM?

Every business is different, and its CLM will look different. However, for a small business, there are a few key steps you can take to start building a process, which include:

• centralising your contracts so all agreements are stored in one central repository. This setup provides easy access and ensures that you are always working with the latest versions;
• tracking key milestones (e.g., payment due dates and delivery timeframes) can significantly help. Setting up these reminders will keep your team informed and proactive, preventing missed deadlines and financial losses;
• assigning responsibility for contract oversight to specific individuals, such as contract owners or team members, can help your business make sure everything goes smoothly and reduce the likelihood of breaches; and
• contracts are not static documents—review them regularly to ensure they remain fit for purpose and cover the risks your business may face from time to time.Regularly reviewing your contracts can also help your business adapt to changing needs and market conditions.

If you need support understanding how to build a CLM process that fits the needs of your specific business, you can seek advice from a commercial contracts lawyer. 

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Key Takeaways

Contract Lifecycle Management is a crucial way to take control of your business agreements, ensuring you actively manage them from start to finish and build strong contractual processes. By adopting a proactive approach through CLM, your business will be in a better position to minimise risks, streamline operations, and strengthen customer relationships.

If you need help with contracts, our experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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