Contract Lifecycle Management (CLM): Why It’s Important and What You Need to Know

Contract Lifecycle Management (CLM) is managing agreements made with customers, vendors, partners, or employees throughout every contract’s life.

CLM involves efficiently creating, managing, sharing, and archiving contracts. Done right, it can be a powerful asset for any business.

Contracts are the foundation of any business. They define relationships, outline obligations, and protect both parties involved. Effectively managing contracts means understanding every stage of their lifecycle and utilising technology to streamline the process.

What Are the Stages of a Contract?

Contract Creation

Contracts are usually generated from a template or scratch using Microsoft Word documents, PDFs, and platforms like Zegal’s legal documents, which offer a more comprehensive and user-friendly experience.

The goal is to create accurate, legally sound contracts efficiently, with minimal manual input.

Contract creation can also involve collaboration between different departments, such as legal, sales, and finance. Using standardised templates and clause libraries can help ensure consistency and reduce the risk of errors.

Advanced CLM tools enable automated contract generation, where users can input key data points, and the system generates a customised contract based on predefined templates.

Contract Negotiation

Once the contract is drafted, negotiation between the parties involved is often required. Legal teams on both sides track document changes, comments, and versions during this phase to come to a mutual agreement. This stage can be time-consuming, as it involves multiple stakeholders and back-and-forth communication.

Modern CLM solutions provide features such as real-time collaboration, version control, and redlining, making the negotiation process more transparent and efficient. By centralising communication and maintaining an audit trail of changes, CLM tools help ensure that everything is noticed and that all parties are aligned on the final terms.

Contract Approval

Approval processes can vary based on the size of the company. Smaller companies may have simple approval flows, while larger companies often involve multiple departments for functional and regional approvals.

Modern CLM solutions automate these workflows, making the approval process more efficient.

In a manual approval process, keeping track of who needs to approve what can be challenging, leading to delays and potential errors. Automated workflows ensure that contracts are routed to the right stakeholders at the right time, with notifications and reminders to keep the process moving forward.

Approval hierarchies can be set up to accommodate different levels of authority, ensuring compliance with internal policies.

Contract Execution

When both parties are ready to agree, they sign the contract. Electronic signatures (eSignatures) make this step faster and easier, but historically, eSignature tools were separate from other contract management functions. A good CLM solution will integrate this seamlessly.

Electronic signatures have become the standard for contract execution, providing a secure and legally binding way to finalise agreements. Integration with eSignature tools allows contracts to be signed from anywhere, reducing the time it takes to execute agreements.

CLM solutions that offer built-in eSignature capabilities provide a more streamlined experience, eliminating the need for multiple platforms.

Contract Storage

Contracts need to be securely stored after execution. The key is to ensure easy access while also recording metadata that makes reporting and searching simple. Storing contracts involves more than keeping documents safe; it requires organisations to support future business decisions.

A well-organised contract repository allows users to quickly find specific contracts or clauses, track key dates, and generate reports. Metadata, such as contract value, expiration date, and involved parties, can be used to filter and search for contracts, enabling better visibility and management.

CLM tools often provide role-based access control to ensure that sensitive information is only accessible to authorised users.

Contract Management and Analytics

The final stage involves managing contracts after they’ve been executed. This includes administration, renewal tracking, compliance monitoring, and leveraging analytics for business insights. Unfortunately, this stage is often the least developed, but effective CLM tools like Zegal can streamline these tasks and extract valuable business intelligence from contract data.

Contract management doesn’t end with execution. Ongoing management is crucial to ensure that obligations are met, renewals are handled proactively, and risks are mitigated.

CLM tools can provide automated reminders for key dates, such as renewal or termination windows, helping businesses stay on top of their contractual obligations. Analytics capabilities can provide insights into contract performance, identify process bottlenecks, and highlight improvement areas.

What Is CLM Software?

CLM software is a digital platform designed to manage contracts throughout all stages of their lifecycle. Unlike document signing software, which merely facilitates digital signatures, CLM tools are about much more. They help legal teams automate contract processes and extract insights to make smarter decisions.

Contracts impact a business long before and after they’re signed. Renewals, for instance, require careful management to ensure obligations are met. A good CLM solution provides notifications for key milestones, such as renewal dates, and streamlines the entire process, from contract creation to execution.

CLM software can also integrate with other business systems, such as CRM, ERP, and procurement platforms, to provide a holistic view of contract-related data. This integration helps ensure that contract information is consistent across the organisation and that different departments need the information to make informed decisions.

CLM for Enterprise Businesses

For enterprise businesses, managing contracts is a complex and resource-intensive process. Enterprise-level contracts often involve multiple stakeholders, intricate terms, and a high volume of agreements. This complexity makes effective contract lifecycle management essential for minimising risk, ensuring compliance, and maintaining efficient business operations.

Enterprise businesses often deal with contracts across different regions, each with unique legal and regulatory requirements. A robust CLM solution can help standardise processes while providing the flexibility needed to accommodate regional differences. Features such as automated approval workflows, audit trails, and centralised storage help enterprises maintain consistency, comply with regulations, and reduce the administrative burden of managing large contracts.

A CLM solution for enterprises should also integrate seamlessly with existing business systems, such as enterprise resource planning (ERP), customer relationship management (CRM), and human resource management systems (HRMS). This level of integration ensures that contract data is accessible to all relevant departments, reducing silos and improving decision-making across the organisation.

Advanced data collection with AI assistance

Advanced analytics is another key component of CLM for enterprises. By leveraging AI-driven insights, enterprise businesses can identify trends, assess risks, and optimise contract terms for better outcomes.

For example, analytics can help identify frequently negotiated clauses or pinpoint bottlenecks in the approval process. These insights allow enterprises to refine their contract templates and processes for greater efficiency and effectiveness.

Scalability is a critical factor for enterprise CLM solutions. As businesses grow, the volume of contracts and the complexity of contract management processes increase.

A scalable CLM solution can accommodate this growth, providing the infrastructure needed to manage thousands of contracts across multiple business units and geographies. It also ensures that new users can be onboarded quickly, with role-based access control to maintain security and compliance.

Security is of paramount importance for enterprise businesses, especially when handling sensitive contractual information. A robust CLM solution should offer advanced security features, such as encryption, multi-factor authentication, and role-based permissions, to protect contract data from unauthorised access. Enterprises must also ensure compliance with data protection regulations, such as GDPR, which requires careful handling of personal data contained within contracts.

In short, CLM for enterprise businesses is about more than managing documents—it’s about creating a streamlined, efficient process that reduces risk, improves compliance, and provides actionable insights.

With the right CLM solution, enterprise businesses can transform contract management from a manual, resource-intensive task into a strategic advantage.

The Evolution of CLM

The history of contract management is long and complex, dating back thousands of years to the first business records inscribed on clay tablets. Today, CLM tools aim to digitise this ancient practice while acknowledging the operational and legal challenges involved.

Legacy CLM systems often needed help to deliver a cohesive solution, instead offering separate modules for different contract phases. These systems tended to silo information, making contract management cumbersome.

Early CLM solutions were primarily focused on document storage and record-keeping, acting as digital filing cabinets. Over time, the focus shifted to include more of the contract lifecycle, such as negotiation and approval workflows.

Modern CLM tools, on the other hand, offer end-to-end functionality, automating and simplifying the entire contracting process. The rise of cloud computing, eSignature technology, and automation has further transformed CLM, making it an essential tool for businesses looking to streamline operations, reduce risk, and improve collaboration.

Looking Ahead: What Makes a Great CLM Solution?

The best CLM solutions today marry the power of automation with the ability to provide strategic insights. They connect all people, processes, and data involved in contracts, transforming the contracting process into an efficient and collaborative journey.

As technology evolves, advancements in artificial intelligence (AI) and machine learning (ML) are expanding the possibilities of CLM, from improving risk assessment to automating routine administrative tasks. AI-driven analytics can help identify patterns in contract data, such as common negotiation points or clauses that frequently lead to disputes. These insights can inform contract templates and negotiation strategies, ultimately improving outcomes.

A great CLM solution should be user-friendly, scalable, and flexible enough to accommodate the unique needs of different industries. It should provide a centralised repository for all contracts, with powerful search and reporting capabilities, and integrate seamlessly with other business systems. Automation features, such as approval workflows and reminders, help reduce manual work and ensure compliance with internal policies.

The Challenges of Contract Lifecycle Management

Managing contracts presents more technological, operational, and legal hurdles than any other business task. Contracts are complex, requiring input from multiple stakeholders, and they often vary significantly depending on the type of agreement, jurisdiction, and industry. This complexity has made it difficult for businesses to digitise and automate the contracting process fully.

Legacy contract management systems often introduce a separation between contracts (typically stored as DOCX or PDF files) and the information within them (e.g., contract value or duration). This separation created challenges for businesses trying to extract insights or ensure compliance, as they had to reconcile data from multiple sources manually.

Modern CLM tools aim to bridge this gap by providing a unified platform that manages both the document and its associated data.

Another challenge is the sheer variety of contracts that businesses deal with. Contracts can cover everything from employment terms to vendor agreements to customer relationships, each with its own set of requirements and risks. CLM tools need to be flexible enough to handle different contract types while providing a consistent user experience.

The Future of CLM: Digital Contracting Platforms

The next evolution of contract management technology is the digital contracting platform—a solution combining contract process automation and agreement management. Unlike traditional CLM tools, which often focus on specific stages of the contract lifecycle, digital contracting platforms provide an end-to-end solution that connects all the people, processes, and data involved in contracts.

Digital contracting platforms go beyond simply managing documents. They provide a collaborative environment where stakeholders can work together in real-time, track changes, and ensure that contracts are aligned with business objectives. By integrating with other business systems, such as CRM and ERP, these platforms help ensure that contract data is consistent and accessible across the organisation.

Artificial intelligence and machine learning are playing an increasingly important role in the future of CLM. These technologies can help automate routine tasks, such as contract review and risk assessment, freeing up legal teams to focus on more strategic activities. AI can also provide insights into contract performance, helping businesses identify trends and make data-driven decisions.

Final Thoughts

Managing contracts effectively requires more than just storing documents; it requires a solution that understands the entire lifecycle of a contract.

With the right CLM system in place, businesses can streamline processes, reduce risk, and make better, data-driven decisions.

If you’re interested in finding out how CLM can transform your contract management processes, reach out to learn more.