Contracts are like the skeleton of a company. Although they’re not visible on general business operations, they do provide indispensable support without which no company can act. Contract management lifecyle management remains a silent administrative task for most employees, that takes place behind the scenes.
The importance of contracts always becomes apparent when something doesn’t work as it should. This could happen because a contract wasn’t concluded or extended in a timely manner, resulting in the project being paralyzed or the supply chain breaking down.
In such situations, the importance of contract lifecycle management (CLM) for business processes and how damaging unstructured contract management is for all parties involved becomes immediately apparent. To prevent this from happening in the first place, companies and other institutions need to structure their entire contract management processes as intelligently and rationally as possible.
Ultimately, this will only be possible through consistent digitalization of contract lifecycle management. At this point, however, it’s important to understand that digitalization in itself doesn’t generate true added value. Rather, it’s the prerequisite for making processes faster, more effective and more efficient. In the blog post, we’ll show you what is important in practice.
1. Automated Workflows
Speed, flexibility and customer-friendliness are among the most important virtues of successful companies in the era of digitalization. In day-to-day business, these goals can only be achieved if they’re incorporated into all business processes. Otherwise, processes will be repeatedly blocked, stalled or slowed down. For administrative processes and office communication, this means that routine tasks must be automated as effectively as possible.
So much for the theory. But what does this mean for contract lifecycle management? It goes without saying that negotiating contracts at its core is a process that requires human expertise and competency. In addition to these competency-based processes, however, numerous points can be identified that affect core contract management processes and can be automated. For example, contract management software solutions can guide contracts through their lifecycle according to predefined routines.
2. Standardization of Documents
Employees in companies and institutions who handle contract management manually usually draft new contracts via copy & paste. This involves opening an old contract document, pasting the text into a new document, and then making changes at the appropriate points. The problem with this, however, is that this procedure is not only extremely error-prone; it also requires in-depth specialist knowledge.
It’s easier and far more reliable to work with template libraries, which contain text blocks that have been created together by the relevant lawyers and specialist departments. They also enable legal novices to create contracts. To do this, these text blocks are systematically inserted into the company’s design template to initialize a contract process and, if necessary, supplemented with data from the internal ERP system.
3. Seamless Collaboration
Contract management is teamwork. Particularly when it comes to negotiations, many other people can influence the drafting of the contract in addition to lawyers and in-house counsel. However, this need for collaboration often becomes a stumbling block in corporate practice because it involves many uncertainties. At the heart of this is orchestrating the most seamless collaboration possible on documents in the various phases of the process.
To make matters worse, in the age of working from home and New Work, the way people work has become much more flexible. Employees access documents at different times, on different devices and in different locations. External consultants may also have to be involved in the process. These challenges can only be overcome by digitalizing the entire CLM process and centralizing it via a platform in the cloud. You can only actively plan, promote and control the collaborative working process on contract documents if this requirement is met.
4. Transparency Across All Process Steps
However, the collaborative processing of contracts is not only an organizational problem. At least two departments are usually involved in contract drafting within a company: the legal department and a specialist department. Particularly in the contract drafting phase, conflicts of objectives can quickly arise between these departments. This is because while the legal department is focused on contract security, the specialist departments often work under competitive pressure and need to generate results quickly.
In order to resolve the resulting conflicts early on, or in an ideal case, prevent them from arising in the first place, the entire contract process must be structured in an incredibly transparent manner. When drafting a contract, for example, it must be clear which is the current version of a draft contract or which accompanying documents belong to a contract.
There’s a further argument in favor of ensuring the greatest possible degree of transparency in contract lifecycle management: a centrally established, clearly structured contract management system with standardized workflows means that processes aren’t dependent on personnel fluctuations. This way, processes can be continued much more easily when key employees are on holiday, sick or have left the organization.
5. Function-Based Role and Rights Management
The flexibility of collective contract design not only impacts the effectiveness of the processes; it also affects the issue of security. Security plays a prominent role in contract lifecycle management at various process steps:
- Contracts and accompanying contractual documents contain numerous details that may only be accessible to a small circle of decision-makers and consultants.
- Not all people who have access to documents are authorized to edit them.
- Not all people who can access or edit a document may also sign it to conclude a contract.
To meet these requirement profiles, finely balanced role and rights management must be integrated into contract management. It must be able to be precisely coordinated with the functions of the individual participants and thus help to enforce a company’s compliance regulations. An intelligent digital solution for the legally compliant electronic signature of
6. After-Care of Contractual Relations
Contracts not only enable business processes, they can also become imponderable risks in themselves. This is because they stipulate numerous obligations to which the signing parties must adhere. Contracts that lie unattended in the filing cabinet can therefore become ticking time bombs for companies and their customers – for example, because they fail to respond to contractually stipulated terms or deadlines.
To prevent this from happening in the first place, good contract management actively follows up on all contracts. This involves checking when, for example, a contract or a contractual clause expires or needs to be renewed, and when certain steps need to be taken based on this.
7. Legal Certainty in Archiving
Archiving contracts is something that many companies have not attached too much importance to for a long time. Old contracts used to be stored in file folders according to a more or less individually devised system and disposed of after years. However, in order to comply with the now very numerous requirements of commercial and tax law and data protection, this method is nowadays doomed to failure.
In order to establish legal certainty in archiving, it must now be possible to log work steps and issue access authorizations for almost all important documents. To make matters worse, legal requirements can mean that individual documents have to comply with different regulations. In this context, companies can only reliably establish legal certainty if they rely on an intelligent digital archiving solution for their contract management.
How to Find the Right Software for Contract Management
The digitalization of business processes has long since affected contract management. This guide, which includes a helpful checklist, supports you in selecting a software solution for contract lifecycle management.