Many companies think of contract renewal as a routine process that they can leave on autopilot.
By Norman Kretzmer, the founder and CEO of Contract Understanding
But, apart from the risks of missing the timeframe to cancel or renew a contract, contract renewal is also an opportunity to strengthen your relationship with your business partners and refine the contract to meet your evolving business needs.
Missing contract renewal windows can be expensive and risky. You might allow a service to auto-renew when you aren’t happy with it, or you no longer need it. Your business might be severely disrupted if you failed to renew a contract that is with a key service provider or supplier.
Here are some best practices to consider when a contract renewal comes up:
* Review the terms and conditions of the contract – The key to efficient, low-risk management of your contracts is ensuring that you understand the terms and conditions of the agreements and that you can ensure compliance with any benefits or obligations that have been contracted for. When managing many contracts, a digital platform for post-signature contract management can help you stay on top of the details and ensure that you are alerted timeously when you are required to perform a task or should be receiving something from the other party.
* Assess contract performance – The next step is to take a critical look at the contract and evaluate whether it has met your requirements. Analyse whether the other signatory has lived up to their obligations as agreed to in the initial contract. Also consider whether the relationship as stipulated in the contract supports your current and future business needs as well as if you could secure a better agreement elsewhere. For example, with a property lease, you can evaluate whether the premises will accommodate the growth of your business. For a commercial insurance agreement, you may want to seek some quotes to make sure you’re paying a fair premium.
* Decide whether to renew, renegotiate or terminate the contract – Following steps one and two, you’ll know whether you want to keep the existing contract in place, modify it or exit it when it’s time for renewal. If you’re happy with the contract as is, you can simply sign the renewal or let it auto-renew if such a clause exists. If you want to change certain conditions, you will need to negotiate with the other party. Make sure you have a clear idea about what you hope to achieve before embarking on such negotiations. On the other hand, if you intend to cancel ensure that you keep to the timelines stipulated in the contract because missing those may have unintended consequences.
* Automate contract workflows – The best practice for post-signature contract management these days is to use specialised cloud-based solutions to manage the admin-intensive workflows that are required to ensure compliance. With the right software in place, you can trigger workflows for events such as renewals, terminations, price escalations, force majeure, cancellations, and breaches. In the case of renewals, a predefined workflow will ensure that all parties within the company that are impacted by the decision to renew or not are advised. This would include the finance department to ensure that a payment is not made incorrectly.
Contract management – minimising your risk
Managing post-signature contracts requires significant effort for any business. It’s difficult to keep track of the your contractual obligations and ensure that you comply with them. Failure to do so can cause significant risk to the business resulting in contract cancellation, business disruption, penalties, and reputational damage.
A modern contract management solution will minimise the risks by ensuring that you are aware of your obligations and that these are managed appropriately via automated workflows.