The CLM Process Explained: From Contract Creation to Renewal 

Explore the CLM process how contracts move from creation and approval to execution, compliance, and renewal with modern automation tools. 

Introduction: Why the CLM Process Matters 

Contract management has become a business-critical function in recent years because it reduces risk by ensuring compliance with laws and avoiding disputes, increases efficiency by streamlining processes and automating tasks, and boosts profitability by ensuring you receive full value from all agreements. But effective contract management is vital for managing the entire contract lifecycle, from creation to termination and/or renewal. Contract lifecycle management (CLM) not only increases efficiency and reduces manual effort, but also protects your company’s financial health, legal standing, and operational performance. 

What Is the CLM Process?  

The CLM process has two dimensions. The first is the lifecycle itself, which is the series of steps from contract request through to renewal. But equally important is the automation of the workflows that connect different functions and departments, enabling cross-functional collaboration and decision-making that draws on a single version of the truth. Historically, these departments would have kept their own records, either manually or in siloed systems, leading to inefficiencies and errors. The common data source, supported by advanced analytics, also enables continuous improvements. 

The Six Key Stages of the Lifecycle 

Let’s look at the six stages of CLM: we have consolidated these into six, although some of them can be further broken down. 

Contract Request & Creation 

How do contracts start out in life? Around 80% of supply-side contracts in large organizations are initiated by procurement, for the obvious reason that procurement controls sourcing, supplier selection, and commercial negotiation. Typical contract types initiated by procurement include master service agreements (MSAs), goods & services supply agreements, outsourcing agreements, IT/software/SaaS licenses, facilities management contracts, framework agreements, and amendments/renewals for supplier contracts. Procurement not only leads the sourcing process but also manages the various types of supplier risk and has ownership of category strategies and preferred suppliers. Procurement needs to have contracts in place before new suppliers are onboarded and purchase orders can be issued. 

Contracts typically emerge from the sales/commercial function for outbound/customer contracts. Typical contract types initiated by sales include customer MSAs, sales agreements, distribution contracts, partner/reseller agreements, licensing or subscription agreements, or NDAs before pitching. 

Sales will initiate contracts because they control the customer relationship and deal structure, they need quick turnaround to close deal, and they own revenue targets and pipeline. In many organizations with formal revenue operations, a department such as “Revenue Operations” initiates the contract on behalf of the sales team, especially when pricing needs validation. 

Legal teams tend not to initiate the contract except in special cases; instead, they set the rules, templates, clause library, and guardrails. However, legal might initiate litigation or settlement agreements, IP agreements, corporate governance documents (JV agreements, shareholder agreements), and highly sensitive regulatory contracts. Legal might also take the lead when business stakeholders request legal to draft from scratch. But overall, legal is a support function, not a demand generator. 

In many organizations, especially higher education, healthcare, engineering, R&D, and large decentralized institutions, contracts often start with the business unit, which has the operational need, knows the specification better than procurement or legal, and may already have identified a supplier or partner. A typical example could be a lab team needing a specialized research service. 

Finally, corporate finance may initiate a contract when it directly affects financial exposure or compliance; an example could be banking or treasury agreements. These are relatively rare compared to procurement/sales-originated contracts, but they still exist. 

However, wherever the contract originates, it can and should be handled within the CLM system to ensure efficiency and consistency. CLM can assist at the request stage with dynamic request forms that adapt based on answers, built-in playbooks that auto-select the contract template, the relevant jurisdiction, and the required approvals, for example the threshold values that require signatures from the CFO. A CLM also ensures that supplier IDs and customer accounts are validated at source and that spend categories, cost centers, and GL codes are captured up front to avoid re-work later. 

Review & Negotiation 

The next stage has the overarching goal of turning the request into a legally robust contract draft using standard templates and clause libraries. CLM picks the baseline template. The requester or contract manager completes variable fields (names, addresses, term, governing law, commercial schedules) and annexes (SOW, pricing tables, SLAs, data processing addendum, ESG schedules etc.) The clause library is used for standard boilerplate (indemnities, limitation of liability, IP ownership, confidentiality). This is a collaborative exercise that can involve procurement, the legal team (typically the main owner of the clause library), compliance, and the business owner. 

Template automation and smart fields can be used to populate party names, addresses, and deal attributes from master data, clause recommendations (in modern CLM systems AI suggests appropriate clauses based on contract type, risk level and jurisdiction). With guided authoring users see explanations and fallback positions (for example, “If the supplier pushes back on X, your approved fallback is Y”). 

Result: instead of every contract being a one-off, the organization has a controlled, repeatable drafting process. 

Negotiation then aligns the parties on terms without losing control of risk, consistency, or auditability. Typically, the internal team finalizes a first issue draft, which is then shared externally (ideally via the CLM portal). The counterparty redlines the draft and there is often back-and-forth redlining until terms are agreed. For more complex deals, legal drafts or heavily revises sections. 

CLM is vital to ensure tight version control at this stage: a single source of truth for all drafts and comments. The system flags where the current draft deviates from standard language. For each clause, there are “fallbacks” and guidance: when they can be used and who must approve. 

In state-of-the-art CLM systems, AI performs functions such as summarizing key differences between the current draft and standard templates, classifies unusual clauses and extracts key business terms for review: payment periods, notice periods, auto-renewal, exclusivity, most-favored-customer, etc. Operationally, this means an organization can scale negotiation across many contracts while keeping risk tolerances consistent. 

Approval & Execution   

The goal with approvals is to ensure the organization has formally signed off the deal from a legal, commercial, financial and risk perspective before signature. CLM runs approval workflows based on the contract value and term, the risk score (covering risks such as data processing, safety critical, and ESG risk) and deviation from standard terms. The CLM sends each approver a summary view of the commercial terms, any deviations from policy and risk flags. Approvals are captured as part of the contract record. 

The approvals matrix typically consists of the business owner, who confirms business need and budget; procurement, which confirms the sourcing process, supplier selection rules, and commercial optimization; legal, which ensures that the contract is consistent with the organization’s policy and risk appetite (or that exceptions are explicitly approved); finance, which approves budget / revenue recognition impact, large commitments, or unusual payment terms; and risk-related departments and functions (such as compliance, data protection, cybersecurity and ESG, which approve specific schedules and clauses. Finally, executive sponsors (CFO, CIO, COO, etc.) will approve high-value, strategic, or high-risk deals. 

CLM helps speed these processes with rules-based approval workflows. It automatically assigns approvers, eliminating the need to chase them with emails and other inefficient methods. CLM dashboards highlight bottlenecks and cycle times and a CLM audit trail keeps a record of who approved what, when, and with what commentary. This is where CLM really formalizes the governance: contracts don’t slip through with ad hoc or verbal approvals. 

The contract is formally executed. This is now usually via e-signature. The contract becomes legally binding and operationally active. Authorized signatories often include senior management in addition to legal and procurement. 

Storage & Obligation Management 

Once a contract is fully executed, two things must happen: first, it must be stored in a single, authoritative place to ensure “one version of the truth.” Second, its obligations must be actively tracked, managed, and enforced, making the contract live in the organization. Modern CLM treats these as an integrated discipline called Storage & Obligation Management. 

Modern systems extract obligations automatically (using AI), convert obligations into tasks with owners, due dates, and reminders; link obligations to relevant systems (source-to-pay platforms, ERP etc.); trigger workflows (typically based on expiry dates); and log compliance evidence. This is where contract lifecycle management earns its name! 

However, this goes way beyond storage. The contract and its metadata are stored in a searchable repository, enabling reporting on risk, spend, savings, obligations and renewal cycles. This information is held by procurement (and reported using spend and supplier analytics). Legal has an interest in compliance records and the CFO/finance for financial insights and forecasting. 

Compliance & Performance Monitoring 

The organization monitors delivery, service levels, pricing, milestones, invoicing accuracy and compliance with all contract obligations. It monitors metrics such as performance against SLAs. Procurement takes the lead on supplier performance alongside the business owner/operations. The legal, finance and compliance teams may get involved if there is dispute escalation. CLM dashboards show any overdue or high-risk obligations, and cross-supply-base compliance, issuing automated dashboards and keeping audit trails. 

Renewal or Termination 

Adjustments are made to scope, pricing, timelines or terms, requiring revision and re-approval through a controlled process. Any or all of the stakeholders may be involved here. Before expiry, the organization assesses performance and value to decide whether to renew, renegotiate or end the contract. Procurement typically takes the lead on renewal assessment and the contract renewal process, working with the business owner. Legal may be drawn in to issue formal notices or renegotiate terms. Finance need only get involved if there is a budgetary impact. One of the objectives here is to prevent lapses and missed opportunities. 

How Automation Streamlines the CLM Process 

Let us now return to the other dimension of CLM: the automation of the workflows that connect different functions and departments, enabling cross-functional collaboration and decision-making that draws on a single version of the truth. This would simply not be possible without modern CLM software. Automation reduces manual handoffs and delays that are inevitable if contract management is fragmented across different departments. Smart routing, AI clause comparison, and risk scoring and above all a centralized data repository streamline the CLM process. 

Key features of a CLM system in this regard include: 

The Centralized Contract Repository 

A secure contract repository allows businesses to store, search, and access contracts in one location, eliminating data silos and enhancing visibility. All relevant documents are easily retrievable during audits, negotiations, or compliance checks. 

AI-Powered Capabilities 

CLM systems leverage AI to draft, review and analyze contracts with speed and precision. AI flags risky terms, ensures compliance with predefined standards, and simplifies obligation management. Deadlines are less likely to be missed and financial liabilities minimized. 

Collaborative workflows 

Today’s CLM systems facilitate seamless collaboration across departments. Integrated workflows streamline approvals and updates, reducing delays and ensuring consistency. 

Scalability 

The volume and complexity of contracts continue to increase. Automated tools can scale to meet growing needs, supporting larger volumes of agreements or more complex requirements as organizations expand, without increasing headcount. 

Benefits of a Streamlined CLM Workflow 

Procurement will see the most immediate benefits of a streamlined CLM workflow, but they extend to the entire company.  

Risk Mitigation and Compliance 

CLM plays a crucial role in a business environment that is increasingly regulated and litigious. It incorporates systematic compliance checks and notifications, providing a safeguard against unintentional breaches of contractual obligations. 

Contracts must comply with all relevant laws, regulations, and internal policies, preventing legal disputes, fines, and other sanctions. CLM reduces potential liability by clearly defining terms and obligations for all parties involved, protecting the company from losses and liabilities. Streamlined processes and clear documentation significantly reduce the risk of contract disputes. Moreover, CLM helps to secure the supply chain. It is a vital component in managing supplier performance and risk, mitigating issues such as failed deliveries and supplier disputes that could disrupt operations.  

Operational Efficiency 

Today’s CLM systems automate administrative tasks such as drafting, approval workflows, and tracking, freeing up valuable time for more strategic work. They furthermore improve workflow and collaboration by centralizing contract data and providing a single source of truth, making it easier for different departments to collaborate effectively, in particular those with the biggest stake in contract management: legal, procurement, and finance. By increasing visibility into all agreements, CLM systems help to ensure that nothing falls through the cracks and helping with forecasting and strategic decision-making.  

Financial and Strategic Value 

CLM is essential to ensure that companies receive the full value from every contract by tracking obligations, managing invoices, and identifying renewal opportunities. By improving efficiency, preventing missed obligations, and avoiding penalties, CLM helps procurement to achieve its primary goal of driving down costs. But beyond this CLM supports strategic decision-making. It provides data and insights from contracts that can be used to inform and improve business strategy and relationships. 

Faster Contract Cycles and Cost Savings 

By streamlining contract processes, businesses can accelerate contract cycles, resulting in faster time to revenue. The increased efficiency and accuracy of CLM automation also leads to improved supplier/vendor relationships, ensuring favorable contract terms and reducing the risk of business disruptions. 

CLM can identify opportunities for negotiation and renegotiation, guaranteeing organizations secure the most advantageous terms possible. This proactive approach empowers organizations to optimize the value derived from contractual engagements. 

Greater Visibility & Transparency 

Legal, procurement, and finance teams, as well as suppliers, all benefit from the increased visibility that streamlined CLM workflows deliver, because CLM is based on a centralized hub where all relevant stakeholders can seamlessly access and thoroughly review contracts. This fosters a collective understanding of contractual terms and responsibilities, thereby decreasing the likelihood of misunderstandings or disputes.  

Enhanced transparency not only facilitates smoother contract negotiations and discussions but also builds trust among stakeholders. Moreover, in the event of any unforeseen challenges or disputes, it serves as an invaluable reference point, allowing for swift resolution and minimizing potential disruptions to business operations. 

By setting forth clear expectations and responsibilities within contracts, a streamlined CLM workflow also provides a framework that guides suppliers and buyers towards mutual success. 

Flexibility & Adaptability 

A streamlined CLM workflow furnishes organizations with an efficient system for handling amendments, renewals, and terminations. This can be an especially strong source of competitive advantage in sectors where circumstances such as market conditions change rapidly. An efficient CLM workflow also gives organizations the tools and processes needed to handle contract terminations speedily and judiciously.  

Common Challenges – and How to Overcome Them 

For most Chief Procurement Officers, the biggest challenge in implementing a CLM system is starting from a landscape of fragmented processes and disconnected systems. Contracts sit across ERPs, shared drives and inboxes, which makes it difficult to create a single source of truth or enforce consistent standards. This fragmentation is often compounded by years of decentralized contracting, where business units, legal and procurement have all developed their own templates, clause variations and approval habits. Before CLM can deliver value, these patterns need to be harmonized into a common data model and a unified set of templates that procurement, legal and the business trust. 

Adoption is another persistent obstacle. Even well-designed CLM systems struggle when teams revert to familiar tools such as email and Word files. Without clear ownership, a pragmatic change-management plan and a process that feels natural for business stakeholders, the system becomes a legal repository rather than an enterprise platform. A phased rollout helps establish momentum: starting with supplier contracts, refining workflows based on real experience, and then expanding to more complex contract families. 

Cross-functional alignment is equally important. CLM touches legal, procurement, finance, compliance, sales and operations. If the workflows or approval rules lock in the preferences of only one function, the system quickly becomes a bottleneck. Procurement leaders need to bring stakeholders together early to agree on how authoring, negotiations, approvals and obligation management will operate in practice, and who owns which decisions. This alignment is central to creating a sustainable, enterprise-wide contracting discipline. 

Finally, many organizations underestimate the work required after signature. Much of the financial value in supplier relationships consists of pricing tiers, rebates, service levels, milestone payments, and these require systematic monitoring and follow-through. Without clear accountability, even the best-designed CLM system fails to address leakage. For CPOs, the transition to a mature CLM environment therefore means putting equal weight on obligation management and supplier performance as on drafting and negotiation. 

In essence, the success of CLM hinges less on technology and more on standardization, alignment and adoption. When these elements come together, procurement gains the visibility, discipline and control needed to reduce risk, close the gap between negotiated and realized value, and support the organization with faster, more consistent contracting. 

Conclusion – Building a Smarter Contract Lifecycle 

Contract lifecycle management has come a long way in recent years. It makes procurement teams, legal departments and corporate finance more efficient, each in their own right, but equally important, it fosters collaboration that impacts the bottom line and leads to sustainable competitive advantage. 

A seamless CLM workflow brings order to the often complex process of creating, negotiating, and managing contracts. It isn’t just a tool for automating processes, however. It’s part of a comprehensive strategy for better governance, compliance, and risk management. For this reason, a CLM implementation project should be approached systematically and thoroughly. Follow the advice in this article and build a project team that engages all stakeholders. Talk to other companies that have already built a successful CLM and invest in the best CLM software – it will pay off.