What is a Clause Library and How Can it Benefit My Small Business?

I get this question a lot.

Having a well-resourced clause library of your most-common clauses speeds your entire contract process – from drawing up the agreement, through negotiation and redlining, to signing and fulfillment. It’s frequently the reason that small businesses decide they need a contract lifecycle management solution.

Clause library access will help your organization remain consistent, not just within its own products and services, but you can rest assured that the clauses you’re using are also compliant with new regulations. During the negotiation and redlining process, having pre-approved clauses (as well as the visibility to what they are for) allows staff to swap them out at a customer or vendor request without needing to consult the legal team. And having clauses identified in a library also eases fulfillment because it’s easy to see at a glance what has been promised.

Experienced contract manager Hie Jung Yoon said risk was usually seen as a secondary concern, something the lawyers would handle, but risk permeates the contracting process and all levels of the company should be mindful:

“Contracts are legally binding, and there is the constant possibility of litigation. Regulatory compliance looms large in some industries. Poorly or loosely worded contracts can cost your business further opportunities or change relationships with key customers. They can also impact your organization’s forecasted or actual revenue, which might influence how your financial performance is perceived by corporate investors. Bad contracts or contracting processes can ultimately cause you to lose business and slow the growth of your organization.”

What’s in a Clause Library?

Generally, clause libraries contain the following:

  • Individual pre-approved clauses governing the commitments your company and its partners are responsible for
  • Tags showing the conditions in which they should be used. These are usually set by the legal team to empower other staff to understand the range of circumstances where their use is appropriate.
  • Groups of clauses that are frequently or necessarily used together, including master-subclause relationships that together establish or limit responsibility or liability.
  • Modified clauses, and the individual contracts in which they appear. This is vital for tracking outliers and making sure fulfillment matches the commitments made in the contract.
  • Alternative clauses matched with the clauses they can replace.

Here are some examples of clauses, from the International Association for Contract & Commercial Management.

How Does a Clause Library Work in a Contract Lifecycle Management Tool?

Inside contract management software, a clause library speeds the development of contracts and preserves their intent. It means the expectations of all parties are instantly visible, including what your business is responsible for, so you don’t fail to deliver. Regulatory compliance is handled inside the tool and having a robust tagging policy means your legal team can audit easily and immediately identify contracts that expose your company to risk.

Small Businesses Carry Some of the Biggest Risks

Business litigation attorney Matthew Schaap says many business owners were too trusting when it comes to contract management.

“In many ways, business owners act like consumers when it comes to contracts. They don’t carefully review them. Over time, business owners develop anecdotal evidence that reading contracts is not important.”

Matt says the big difference is that if you don’t read your cable contract properly, the worst that can happen is that your cable will be switched off and your final bill sent to collections. For a small business, the consequences can be so, so much more so it’s vital you have a contract strategy and a handle on your liabilities.

We’d love to talk with you more about how a clause library can help your business. Get a demo today.