No matter what sector your organization is in, contracts will likely be a daily occurrence.
Research from PwC states that most organizational transactions are governed by agreements, with 20,000 – 40,000 being considered the average per organization.
Contracts are the lifeblood of all SMBs. Not only do they minimize risk exposure, but they ensure that all parties profit from the agreement. The most favorable contract terms are obtained when a rigid contract lifecycle process is made.
Managing a contract’s lifecycle is called contract lifecycle management. SMBs can also keep on top of all contract lifecycle obligations with clients or vendors by adopting contract lifecycle management software.
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What is a contract lifecycle?
Contract lifecycle refers to the lifecycle of contracts from initial inception to post-delivery, in essence, the entire lifecycle of a business’s contract.
Legally binding contracts are critical to an organization’s performance. Organizations digitizing their contract lifecycles can maximize their business performance, reduce their legal risk, and achieve their goals quicker.
👉 Read more about 12 benefits of Contract Management Software you simply can’t pass up.
What are the stages during a contract’s lifecycle?
The contract lifecycle stages are not a set framework of stages in contract management. The lifecycle can vary depending on organizational challenges and procedures.
Typically the different phases of contract management can involve either several or all of the following:
1. Contract initiation
Before contract initiation, both parties must clarify agreement objectives and what each wishes to obtain from the contract. During this stage, organizations and SMBs use contract templates to reduce the time taking to initiate negotiations.
However, finding contract templates can take a while, so ensure that you have a well-stocked library of contracts that are easy to find for the right industry or vendor, complete with standardized language.
Drafting a contract is a critical step as it sets clear boundaries for both parties. Any language inconsistency leads to expectations not being met and, worse, revenue losses if a contract loophole is exploited.
The negotiation stage requires much back-and-forth communication between both parties. This stage can be extremely time-consuming, as every point of negotiation must be discussed and agreed upon. Other stakeholders must be brought in to check what has been approved and even signed off.
4. Approval & Execution
As per the negotiation stage above, a contract requires numerous approvals from different people within an organization. Typically, it is not only one person that must approve. Within SMBs it can begin with the CEO, then heads of departments like legal and finance. This sequence of approvals consumes much time and extends the contract lifecycle.
Only once all the required approvals are made, the contract can be signed and can commence.
5. Contract Obligation
Contract lifecycle does end with the signing of the contract. After signing, all parties must deliver their obligations regarding KPIs, deadlines, performance, and payments. Failure to adhere to the contractual obligations is in breach of contract.
6. Auditing & Reporting
Contract audits are needed to meet compliance and minimize risk, both financially and operationally. Manual auditing is somewhat error-prone, and hard to maintain an audit trail that is requested on demand.
7. Compliance and amendments
Proper compliance management helps reduce costs and bottlenecks and sets the standard for future contracts.
Amendments are a part of the lifecycle of a contract and need to be dealt with efficiently without compromising the contract lifecycle process.
Once a contract reaches its expiry date, either it will be ended or renewed depending on the performance and obligations of both parties. Maybe the agreement will need to be amended to add or remove specific clauses required to ensure the mutual satisfaction of both parties.
With these eight phases of the contract lifecycle process, SMBs can improve their contract lifecycles using scalable and automated contract lifecycle management software.
What is the contract lifecycle management software?
Contract lifecycle management software is an application that helps organizations, SMBs, and corporate departments manage their contract lifecycle better.
Historically, lifecycle management — from authoring and approval to routing and signing — required ongoing collaboration between internal and external stakeholders and systems.
Contract lifecycle management software brings operational processes together under one hub to foster a seamless end-to-end user experience.
CLM software increases contract visibility and streamlines collaboration communication amongst parties. Automated drafting, routing, and workflow management accelerate contract timelines to completion faster than if done manually.
E-signatures offer a quicker and more secure way to approve contract agreements—from any location, at any time.
How does CLM software improve contract lifecycles?
Finding a Contract lifecycle management software that suits your organization needs will enhance the contract process efficiency and improve the business by:
1. A Cloud Central Contract Repository
A cloud centralized contract repository makes it easier to locate contracts in an organization. Document management becomes highly simplified and streamlined when using contract lifecycle management software. Avokaado’s 360° view gives you a glance view of your company’s documents, including their current status, who has access, and when who last edited them.
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2. Automated Document Generation
Automating document generation shortens the contract lifecycle from initial conversations to the finalized agreement. Automation provides increased convenience to all parties. For example, suppose you have an existing master template. You can easily upload the document to Avokaado.
A machine learning-based algorithm then divides the document into blocks for you, so you do not have to write several versions at once but use selected sections when needed. Simply put, changing a few key fields each time rather than writing a new document.
3. Self-serve Contracts: Delegation or Collaborative Drafting
Securing multiple drafts from different stakeholders is a time-consuming and costly process during the lifecycle of a contract. CLM software is more collaborative in that it can send questionnaires to the relevant parties when each person needs to draft or work on an agreement.
Avokaado has a pre-generated questionnaire where you can start drafting your document by just answering the questions. You can sort them by their categories and begin preparing a new document by clicking on the desired template.
4. Optimize Contract Negotiations
There will always be a stage for contract negotiation during contract lifecycles. Both parties must ensure they read the entire document to have no other terms added or deleted from other versions.
Avokaado can let users add collaborators and notify them when a contract section has been negotiated and requires approval.
5. Get Approval Before Finalizing the Contract
Not getting the correct approvals can lead to delays in a contract’s being finalized. Most SMBs require approval from other parties before they can finish and sign the contract.
Within Avokaado, after sharing the document, collaborators will receive a unique link from where they can access the document and can either view what has been generated or edit the document, share their input, or even add additional documents to it before signing.
6. E-Sign the Contract
Signing contracts should be easy and quick if both parties agree to the terms during the approval stage.
Yet, this is not always the case. Getting all the necessary signatures can be tricky if stakeholders are located abroad, in different time zones, or working remotely.
CLM software like Avokaado allows users to add contract approvers, whether in-house legal counsels or external lawyers. Wherever they are, they can e-sign the contract and confirm the deal before you can proceed to sign it.
7. Keep Up With Amendments and Revisions
Contracts are rarely stagnant, with amendments and revisions forming a large part of the contract lifecycle process.
Most contract lifecycle processes need to monitor changes to ensure what has been revised is agreed upon. Every revision and amendment must be recorded. All parties can rest assured that neither party is attempting to defraud the other. For instance, Avokaado’s Audit Log can display all changes to contracts, keeping transparency at the pinnacle of the contract lifecycle.
8. Audits, Renewals, and Obligations
Contracts do not end once the agreement has been signed. All parties should perform audits to determine whether they are meeting their contractual obligations.
Plus, when contracts are up for renewal upon their end date, rather than terminating the agreement or just renewing, parties can suggest amendments and insert them into a new contract to be renewed.
9. Reporting & Analytics of Contracts
Analytics allows SMBs to measure the performance of a contract and provides insights to amend the contract management process early on. Organizations can turn these insights into reports to understand better where bottlenecks occur and where organizations can make recommendations.
10. Seamless User Experience
Contract lifecycle management software optimizes the contract lifecycle and reduces the risk of exposure and human error. However, often a neglected feature of CLM software is usability.
SMBs who need to manage complex contracts should receive a seamless user experience. For instance, Avokaado empowers users to keep their documents in one place, so users can search and access them from various remote locations. Users can share documents and allow only authorized users to have relevant access.
So, no matter who drafts the agreement, all contract collaborators can monitor, amend and approve contracts without referring to different documents, ensuring uniformity across all contract workflows.
Are you ready to automate your contract lifecycle?
Contract lifecycle management software offers SMBs to remove inefficiencies in their contract workflows that slow down their businesses. SMBs can remain agile and adopt business-wide efficiency when using CLM software like Avokaado.
Avokaado is the best contract lifecycle management software that is fully adaptable to your business requirements. Avokaado’s contract management and document workflow automation allow SMBs to manage all contracts and related workflows in one place – storing documents, creating, collaborating, and executing all forms of legal document management.
👉 For a full features list designed for SMBs, click here and scroll down.