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Did you know that contracts govern around 60 – 80% of business transactions? The same report also suggests that large businesses lose approximately $215,000 each day that a contract process drags on. Additionally, it’s suggested that by eliminating contract inaccuracy and non-compliance, companies reduce 33-41% of costs, which equates to 2% of total annual costs.
That is where the contract lifecycle management system comes into the picture. It’s a process of managing, analyzing, and executing contract creation. Businesses started adopting contract lifecycle management circa 2018, but the trend gained momentum in the post-pandemic world. It is because contracts these days are mostly digital.
CLM helps businesses minimize contract risks and ensures that they comply with regulations, audit contracts, and stay organized from start to finish. According to Goldman Sachs, the business with an established CLM process enjoys an 80% reduction in payment errors, speeding up negotiation cycles by 50%, and more.
Apart from these tangible benefits, contract lifecycle management can help a business in a lot of ways. Here are some of the top benefits of contract lifecycle management for businesses.
CLM Streamlines the Whole Process
Ask any businessman or lawyer, and they will agree on the importance of preparation. The same applies to contracts. That is where the CLM comes in handy. The contract lifecycle management system can sift through your past contracts to find standard language that can be reused.
If document automation software is being used, businesses can draft contracts in mere minutes. These CLM systems can identify the key team members to include in the contract and outline any issues that might have cropped up in the past.
Tracking and Monitoring Contracts is Simplified
One of the most crucial aspects of contract management is to track compliance, milestones, timelines, and other parameters. An established contract management system can track contracts for potential risks and issues. Once it recognizes a risk or issue, it notifies the concerned team to take action.
CLM software offers detailed data dashboards providing valuable insights and visibility into the workload and distribution. The system can also pinpoint areas where the contract lifecycle delays are taking place. Data-driven solutions like this allow automation spanning beyond the legal department by integrating the contracting process into various facets of the business.
Eliminates Human Bottlenecks
It’s a known fact that manual managing and drawing contracts are complicated processes. It takes a lot of time and effort from the various teams. There are also chances of errors caused by human handling and intervention. According to experts, these human errors are one of the major roadblocks when it comes to contract management. By employing an automated contract lifecycle management system, brands can easily get rid of such human bottlenecks.
The data-driven contracting also prevents the organization’s legal team from being buried in the sea of documents. It uses the readily searchable contractual information to identify strategic opportunities that might have gone unnoticed otherwise.
As you might already know, compliance is the key aspect of any contract. If there’s any deviation from contractual obligations or compliance, companies might face financial and legal loss. Therefore, to avoid litigations, it’s crucial to maintain compliance. For that, a sound contract lifecycle management system is required.
A CLM system stores all critical business documents in a records management system with backups and retention policy enforcement policies. It ensures compliance enforcement since your critical records are secure.
Makes Collaborations Easy
As mentioned above, CLM offers a centralized repository for the storage and handling of all contracts. CLM systems store all contracts and critical business documents in secure clouds to ensure the privacy and security of those documents. Teams that work on these contracts have easy access and work on them securely and collaboratively.
Ask anyone who has dealt with contracts, and they will tell you that even the most simple contracts can involve several collaborators and multiple layers of sign-off. CLM eliminates the need for multiple versions and thus forms a unified workspace where all edits, approval, markups, and execution takes place on a single platform.
Helps in Saving Time and Cost
As mentioned before, PriceWaterhouseCoopers revealed that the errors/inaccuracies in the busy and sell-side of a contract resulted in 2% of annual costs. With an automated CLM system in place, businesses can save a ton of money by eliminating compliance penalties, opportunities lost due to human errors, and payment errors. CLM also saves time by offering an easily searchable contract database, streamlined function, and eliminating any rework to prevent delays.
With the world fast adopting digitization, contract lifecycle management is critical for every business. An effective CLM will help businesses gain credibility, improve governance, avoid penalties, and save time as well as effort.