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Contract renewal is an issue that may not always be top of mind. But a failure to properly manage contract renewals can give rise to a number of business challenges. On the buy side, inadvertent contract renewals could cost tens, or even hundreds, of thousands of dollars. On the sell side, a failure to plan for upcoming renewals could lead to lost upsell opportunities.
Various factors can contribute to why a renewal date passes by unnoticed. Personnel changes could mean that the person responsible for the contract is no longer there. Sometimes there is miscommunication between departments, which can be exacerbated if there is no central system of record. Sometimes, people simply forget.
This problem is compounded at fast-growing companies. Often, the company is focused on the excitement of closing new deals and hiring to support growth. The more pedestrian task of contract hygiene may be forgotten until problems appear. It doesn’t help that contract renewals can often appear with many different variations, and the presence of notice periods mean that action is often required some time in advance of the actual renewal date.
Using Contract Management Software to Create a Rigorous Process for Tracking Contract Renewal
A quality contract management system should record all important contract dates centrally, remind stakeholders of those dates, allow sufficient time for a review process, and facilitate a well-prepared negotiation.
1. Record All Expiries and Renewals in One Location
It is vital to have all contract dates in a central location if you hope to manage contract renewals effectively. Without a single source of truth, people may need to navigate multiple systems to find a single date. This is an overly complicated process that will break down at scale.
2. Automatically Calculate Dates
It’s easy to miscalculate contract renewal and expiry dates. Here is a simple example. Suppose a contract starts on 1 February 2021 and runs for a one-year term. When does it expire? The answer is 31 January 2022, but with a manual calculation it’s easy to record the expiry date as 1 February 2022. A one-day error in calculation could be significant For example, it could mean an accidental renewal and wasted money. And that’s the simplest example. With notice periods, multiple terms and auto-renewals, elaborate mental gymnastics could be required just to calculate the correct date. Good contract management software will perform the calculations instantly for you.
3. Allow Time For Contract Reviews
Knowing the renewal date isn’t always enough. Suppose there is a 60 day notice period for cancellation. By the time you approach the renewal date, the opportunity to cancel will no longer be there. But even the notice period may not be enough. If you see a calendar entry notifying you that the notice period for a particular contract is today, that will often not leave sufficient time for planning.
To properly review the contract, you’ll often need to know:
- What the contract will be worth going forward
- If there are any better value alternatives on the market, or if pricing can be renegotiated as part of the renewal process
- The performance of the counterparty over the prior period. Are they providing everything they should on time? Are they providing quality goods or services? Were there any disputes and how were they handled?
- The opinion of stakeholders in your own business to find out how they view the current provider
To accomplish all this, you’re going to have to allow sufficient time. That’s why you’ll often want to be notified a certain number of days in advance of the notice period (and possibly also the renewal date). Contract management software not only records dates – it can send reminders to all those involved, letting them know what’s involved and getting them to provide the information requested to manage the renewal process.
Contract Management Software is the Key
Gathering all the information you need from many different sources can be a time-consuming process. Even if you put in all the work, you could find you’re working from inaccurate or incomplete information, especially if the information is split across multiple systems.
A contract management software system can solve these challenges. The right system will make it simple to extract and upload contract metadata into a single source of truth. It will also provide alerts ahead of critical dates so you can act in time and offer a complete view of a vendor’s performance.
Contract management software can reduce supply chain risk and ensure compliance at all stages of the contract. You will be able to move forward from a place of preparation and detect opportunities to gain greater value from current vendors or obtain a better deal in the market at renewal time.
