Best practices for Contract Lifecycle Management (CLM)

Effective contract management is a key driver of operational efficiency, risk reduction, and compliance in today’s complex business landscape. According to a World Commerce and Contracting study, inefficient contract management can cost companies up to 9% of their annual revenue. As businesses increasingly recognize the value of streamlining their contract processes, it’s no surprise that 1 in 2 companies plan to invest in improving or deploying a CLM tool within the next three years, while 22% already have advanced solutions in place.  

Understanding how CLM software works

With the basics of Contract Lifecycle Management (CLM) established, it’s time to explore the core processes behind it. Every contract progresses through a series of stages that help ensure all aspects of the agreement are properly managed and compliant with organizational goals. A well-implemented CLM system simplifies each stage of the contract lifecycle and allows businesses to maintain transparency, reduce risk, and improve operational efficiency.   

By implementing a robust CLM system, organizations can improve visibility and control over their contracts and optimize every stage of the lifecycle — from initiation to renewal. With automation, centralized storage, and real-time analytics, CLM tools empower businesses to reduce errors, minimize risks, and ensure better business outcomes. Investing in CLM isn’t just critical for improving contract management; it’s critical for positioning the business for long-term success in an increasingly competitive market. 

The 8 stages of a contract’s lifecycle 

1. Contract request and initiation

The contract lifecycle begins when a new agreement is needed. Whether it’s a partnership with a vendor, an employee agreement, or a customer contract, identifying the need and properly initiating the process is crucial. This stage often involves gathering relevant details like contract objectives, legal considerations, and stakeholder approvals before the drafting process can begin. 

How CLM software supports contract initiation: 

CLM software enables organizations to create structured workflows for initiating contract requests with a variety of contract initiation interfaces, all designed to make it easier for users to request a new contract through a form, rather than through an email. For example, a procurement team can submit a request for a supplier contract using a standardized digital form, which then triggers automated workflows that route the request to the appropriate parties for approval. This ensures all stakeholders are notified and involved from the outset, reducing delays and increasing accountability.  

2. Drafting the contract

Once the initiation phase is complete, the next step is to draft the actual contract. The drafting phase involves crafting a document that clearly outlines all key terms and obligations, including payment schedules, deliverables, and timelines. On the buy-side, procurement professionals must also manage the receipt and integration of external contracts. This involves loading these contracts into the system, ensuring they align with internal policies, and negotiating any necessary amendments. Without the right tools, this process can be equally cumbersome and prone to errors, highlighting the importance of a robust CLM system for both drafting and managing external contracts.

How CLM software supports contract drafting: 

With CLM software, the drafting process is not only streamlined but standardized. Pre-approved contract templates and clause libraries allow organizations to create contracts that adhere to Legal and compliance standards while still being flexible enough to accommodate specific requirements. For instance, a Sales contract template can be configured to auto-populate essential clauses, saving time and ensuring consistency.  

Additionally, CLM platforms offer version control, making it easy to track edits and revisions without losing sight of the original terms. They also should offer the option to store documents off-platform, in document-management platforms like Sharepoint, while maintaining an unbreakable connection between the data in the contract and the CLM record. This ensures that the latest version of the contract is always the one being reviewed, eliminating confusion and minimizing risks. Gartner reports that businesses using CLM tools see a 50% reduction in contract approval time due to standardized templates and faster revisions. 

3. Reviewing and negotiating terms

Spanning days and sometimes even weeks, negotiation is often one of the most time-consuming stages of contract management. Both parties—internal stakeholders or external vendors—must review the contract to ensure that the terms meet their needs and expectations. Depending on the complexity of the agreement, this stage can involve multiple rounds of revisions, each introducing potential delays or miscommunication.  

How CLM software supports contract review and negotiation: 

CLM software speeds up the negotiation process by offering collaborative tools like real-time editing and redlining. Rather than sending contract drafts and rounds of negotiations back and forth through email, stakeholders can work within the CLM platform, making changes and adding comments directly in the document. For example, a legal team might propose adjustments to indemnity clauses, while the procurement department reviews pricing terms. This level of collaboration minimizes the need for lengthy discussions and allows for quicker decision-making and negotiating. 

4. Approvals and final sign-off

Once the negotiation phase is complete, the contract enters the approval process. This stage requires signoffs from various internal stakeholders, such as Legal, Finance, or upper management. Without a structured system, this phase can easily result in bottlenecks—delays caused by individuals forgetting to take action or disagreeing over final terms. 

How CLM software supports contract approvals: 

With CLM software, the approval process becomes a matter of clicks. Pre-configured workflows automatically route the contract to the appropriate individuals for their sign-off, significantly reducing wait times. Automated reminders ensure approvers are notified when their action is required, and permissions can be set so that only authorized personnel can approve specific sections of the contract. Automation ensures timely approvals and creates a clear audit trail, helping businesses stay compliant with internal policies and external regulations.  

5. Contract execution (wet signature or e-signature)

After gaining all necessary approvals, the next stage is execution — where both parties sign the agreement, making it legally binding. Traditionally, this required physically printing, signing, and scanning documents, which introduced unnecessary delays and complications. While wet signatures (handwritten marks with pen and paper) are still necessary in specific legal and regulatory contexts, digital signatures, also known as e-signatures, are increasingly used across various industries due to their convenience and security. 

How CLM software enhances contract execution: 

CLM platforms integrate seamlessly with e-signature solutions like DocuSign or Adobe Sign, making it easy to execute contracts digitally. According to PwC, using e-signatures can reduce the time spent on contract execution by up to 80%, speeding up overall contract finalization and eliminating the need for physical signatures.  

Additionally, with the global e-signature market projected to reach $12.7 billion by 2030, the shift towards digital signatures reflects rapid adoption across sectors. E-signatures eliminate the need for physical documents, accelerate the signature process, and ensure that both parties have immediate access to the finalized contract. Moreover, digital signatures provide additional security and audit trails, which are crucial for maintaining legal compliance. For global organizations working with remote teams, this functionality is especially valuable, as it ensures that contracts are signed quickly, regardless of geographical barriers. 

6. Obligation and compliance management

Once a contract is signed, the focus shifts to ensuring that all parties fulfill their obligations. This stage includes tracking performance metrics, monitoring compliance with terms, and addressing any discrepancies or breaches that may arise. Poor management during this phase can lead to penalties, missed opportunities, or strained relationships with business partners. 

How CLM software supports obligation and compliance management: 

CLM software helps businesses stay on top of contract obligations by providing real-time monitoring of Key Performance Indicators (KPIs). Automated alerts notify users of imminent important milestones, such as payment dates or delivery deadlines. For example, if a vendor is late delivering materials for a construction project, the system can flag this delay, allowing the project manager to take immediate corrective action. Additionally, compliance tracking features ensure that all contractual terms are met, reducing the risk of disputes or regulatory violations. This stage is crucial for mitigating risks and ensuring that contracts continue to deliver value throughout their duration. 

This capability is particularly valuable given the challenges many organizations face in post-signature management. According to Deloitte and WorldCC’s When Technology Meets Humanity report, fewer than 30% of organizations currently have centralized or center-led resources for managing contracts post-signature. By implementing CLM tools, businesses can centralize their post-signature contract management, avoid costly auto-renewals, and make informed decisions about their contract portfolio. 

7. Contract renewal or termination

As an agreement approaches expiration, the involved parties must decide whether to renew, renegotiate, or terminate it. Careful management of auto-renewals is crucial in over to avoid so -called “zombie contracts”— agreements that quietly renew year after year without review, often at increasing costs. These undesired auto-renewals can drain resources, lock companies into unfavorable agreements, and create compliance risks. 

How CLM software supports contract renewal and termination: 

CLM software sends automated alerts well in advance of a contract’s expiration date, giving stakeholders ample time to evaluate the contract’s performance and decide on the best course of action. Advanced analytics provide data-driven insights that can help businesses assess whether a renewal or re-negotiation is in their best interest. Additionally, the CLM solution can generate reports on contract performance, highlighting areas that may require improvement or re-negotiation before renewal. With CLM tools, organizations can avoid costly auto-renewals and make informed decisions about their contract portfolio. 

8. Record keeping

Keeping fastidious records of all agreements is essential for future reference, audits, and compliance. Contracts need to be securely stored and easily retrievable when needed.  

How CLM software supports record keeping: 

CLM software acts as a centralized, secure repository for all contract-related documents. It allows stakeholders to access contracts anytime, with advanced search features, like natural language search, or chatting with a chatbot, to quickly locate specific agreements. Security features like encryption protect sensitive information, while audit trails track document access and edits, ensuring compliance with legal requirements. CLM software also automates contract archiving, helping businesses adhere to data-retention policies and avoid clutter. 

Best practices for effective CLM software use

While CLM software provides the tools to streamline contract management, adopting best practices ensures that these tools are used to their full potential.  

Here are eight best practices for maximizing the benefits of CLM tools: 

1. Utilizing a centralized repository

A centralized repository is crucial for maintaining visibility and control over contracts. According to The Journal of Contract Management, a staggering 71% of companies struggle to locate 10% or more of their contracts. When contracts are dispersed across departments or stored in different locations, tracking, retrieving, and managing them efficiently becomes a significant challenge. 

Tip: Implement a centralized digital repository within your CLM platform to ensure that all contracts are stored in one secure, searchable location. This makes it easier to locate contracts, review past agreements, and ensure compliance with organizational policies. 

2. Standardization

Standardizing contract language, structure, and format is critical for minimizing risks and ensuring consistency across the organization. This includes using pre-approved templates and clauses that have been vetted by legal teams to reduce the likelihood of errors. 

Tip: Leverage your CLM’s clause libraries and contract templates to create standardized contracts that can be quickly customized for specific agreements. If you don’t already have a clause library in place, consider building one – especially if your CLM offers AI-enhanced creation features. AI can help reduce the resource drain of this important, but potentially time-consuming, task.

3. Automation

Automating repetitive tasks, such as sending approval requests, tracking milestones, and issuing renewal notices, allows teams to focus on higher-value activities. According to Weshare reports, automating contract management processes can also reduce negotiation cycle times by up to 50%, while significantly lowering payment errors by 75% to 90%, thereby minimizing financial risks. 

Tip: Set up AI-driven, automated workflows within your CLM system to handle repetitive tasks. This ensures that deadlines are met, contracts are properly routed, and nothing is overlooked. Automating processes with the help of AI also minimizes the chance of human error, ensuring greater accuracy and efficiency. 

4. Collaboration

Contract management often requires input from multiple departments, including Legal, Procurement, and Finance. Ensuring that all parties can collaborate effectively is key to avoiding bottlenecks and ensuring the contract meets all stakeholder needs. 

Tip: Utilize CLM platforms’ real-time collaboration features, such as commenting and redlining, to foster department communication. This transparency keeps everyone aligned and ensures that feedback is incorporated promptly. 

5. Risk management

Every contract carries some level of risk, whether it’s legal, financial, or operational. Identifying and mitigating these risks is essential for preventing disputes and avoiding costly legal battles.  

The consequences of non-compliance alone can be significant. For example, the EU’s GDPR imposes fines of up to 4% of a company’s annual global revenue for non-compliance, which can be financially devastating. Beyond regulatory fines, unresolved risks can lead to lawsuits, lost revenue, reputational damage, and other operational setbacks that impact the organization’s bottom line. 

Tip: CLM tools provide built-in risk management features that help identify potential issues, such as non-compliance or missed deadlines. Use these features to monitor risk factors throughout the contract’s lifecycle and address them proactively. 

6. Training

Regular and thorough training is essential to help all contracting professionals stay up-to-date with the latest tools, best practices, and regulatory requirements. 

Tip: 
Provide regular training sessions and encourage knowledge sharing among team members to foster a culture of continuous learning and improvement. Create a knowledge base or intranet site where resources and best practices are easily accessible. Additionally, consider obtaining certifications for contract management professionals to demonstrate expertise and commitment to best practices. 

7. Performance metrics

Tracking and measuring performance is crucial to understanding the effectiveness of your contract management process. 

Tip: 
Establish key performance indicators (KPIs) such as contract cycle time, compliance rates, and contract value realization to measure success. Conduct regular reviews of contract performance and management processes to identify areas for improvement. Benchmark contract management practices against industry standards to stay competitive and ensure you are aligning with best practices. 

8. Continuous improvement

Contract management is an ongoing process, and it’s essential to consistently seek ways to improve efficiency and effectiveness. 

Tip: 
Continuously evaluate and optimize contract management processes by using feedback from team members and KPIs to identify areas for improvement. Stay current with advancements in CLM technology and consider periodic upgrades to leverage new features and capabilities. Encourage a culture of innovation by exploring new approaches and technologies that could enhance the contract lifecycle.