Dealing with contracts is among the most common business practices for small and large companies alike. Yet, without proper organization, contract renewal can present a multitude of challenges: costly accidental renewals, a lack of centralized record-keeping for the contracts, personnel changes, a poor handover between teams.
You can easily miss a contract renewal date, especially if your organization is rapidly growing and processing more complex contracts.
The good news is that a contract management software platform like Contract Hound can make your contract renewal process seamless, so you never miss a renewal date again. Keep reading to learn everything you need to know about contract renewal.
What is Contract Renewal?
Renewal of contract is a point in the contract lifecycle when the contract is scheduled to expire. At this stage, counterparties may choose to renew the contract on the same terms, or they may renegotiate and enter a new contract agreement.
Some contracts renew automatically. Nevertheless, it is still crucial for parties to schedule a time to review the contract renewal terms at least thirty days before the renewal.
While automatic renewals can save time, without proper review, they can put all parties at risk of getting locked into a contract that is no longer creating the expected value.
How Do You Manage Contract Renewal?
Missing a contract renewal date can have serious consequences for your business. If the contract ends without you realizing it, you may lose a key supplier or vendor. On the other hand, if a contract auto-renews, you may be bound by a contract you no longer need.
To ensure you don’t miss a contract renewal, here are several key steps you should take:
1. Record All Contract Dates Centrally
A contract renewal date is the final date by which counterparties must decide whether to close out the contract or extend its period (renew).
To keep track of the upcoming renewal dates, record all the dates correctly into a single centralized register like Contract Hound. You can enter start and end dates and then set an automatic notification 30 days before the end date.
Setting renewal notifications is especially useful for those handling several contracts at once. Accidental renewals can be costly and difficult to manage, after all.
2. Build In Time for a Contract Review
How stressed would you be if you had to decide whether or not to renew the contract directly on your contract renewal date?
To make an informed decision as to whether to renew the contract, you will need to:
- Re-assess the current value of the contract
- Determine whether there are more cost-effective alternatives
- Speak to key stakeholders within the business to see how the relationship is going
- Review contract service levels and any disagreements that may have happened during the previous contract period
To complete all these tasks effectively, you will need far more than a single day. As such, you will need to add another date to your system to start a contract review process, which will provide enough time to complete the necessary steps.
With Contract Hound, you can set all the key dates under one platform and trigger automatic reminders to all the relevant parties involved in the contract review process.
3. Negotiate From a Position of Strength
When you invest time in understanding the state and value of the current contract, your supplier’s pricing and products as compared to competitors, and the history of disputes, you will have the full picture to decide whether you want to renew or not.
If you decide to review, you can engage in a negotiation with your supplier, knowing exactly what you would like to update. By researching the relevant information, you will put yourself in the best position to receive what you want from the renewal.
Other Tips to Obtain Contract Renewal Opportunities
A renewal phase of a contract is more than just a yearly check-in. Instead, you can turn it into a more loyal business relationship and an opportunity for more revenue.
In addition to following the correct contract renewal process, follow these tips to capitalize on a contract renewal opportunity:
- Build relationships from the start. The future of your contract renewal is determined from the very first moment the contract is drafted. Here, regular communication is crucial in deciding whether contract renewal would be an option in the future. Make sure to regularly check in to see whether both parties are satisfied, and the contract remains equally valuable for both of them.
- Use a CLM platform. A Contract Lifecycle Management (CLM) platform is a great way to track the entire duration of the contract and review the data on efficiency, value, and contract deadlines. By keeping all the data in one place, both parties will have all the information they need to determine if the contract produces sufficient value for both sides. Store and organize all your contract-related information in Contract Hound to ensure you have everything you need at hand.
- Establish automated alerts. With hundreds, if not thousands, of contracts, keeping track of all the important dates and reminders can get tricky. This is where your CLM platform will come in once again. Contract Hound has the functionality to set up automated alerts that will remind you about all the renewal dates well before the deadlines. You can also create a deadline summary to see when all the upcoming contracts are expiring.
When Should You Discuss a Contract Renewal?
Short answer: negotiate 30 days before the contract renewal date ends.
But there are two things to this: thinking about the issues with your current contract terms and actually negotiating with the vendor on a new contract.
As we’ve mentioned, negotiating from a position of strength means knowing very well what isn’t working in the current terms. Throughout the period the contract is in effect, you should create a list of what can be updated for the next contract. Ideally, these changes should either be fair or lead to a win-win situation for both parties.
What Happens if You Miss a Contract Renewal Date?
Missing a contract renewal date could lead to one of two consequences: the contract gets renewed automatically and leads to costly consequences, or you could lose a contract opportunity with a key supplier.
With auto-renewals, you may lose a chance to renegotiate the contract terms and be locked into a contract with undesirable conditions. On the other hand, failure to renew vendor contracts on time could lead to loss of service for your organization and increased costs.
The truth is, it is unlikely that a key vendor will suddenly stop supplying services and products on a specific date without notifying you in some way. However, they may have a similarly fallible system and miss the date themselves.
The more likely outcome is that after the renewal date passes, you or your supplier will realize this and quickly get into a new contract so that the supply of goods or services continues without interruption.
The biggest problem here is that you will miss the opportunity to renegotiate the contract conditions from a position of strength and will be contractually-bound with no optimal terms for another fixed period.
Benefits of Using Contract Management Software for Contract Renewals
Missing a contract renewal date can be devastating to your business, but it is a problem faced way too often by smaller companies. Without a system to manage contracts and renewal dates, you will find yourself caught in the administrative burden of searching for your data within multiple resources.
So how can you ensure timeliness, accuracy, and a strong negotiating position? By using dedicated contract management software like Contract Hound, you can organize all your contracts and related tasks in a single repository and automate the associated reminders and approval notifications.
The benefits of using Contract Hound for contract renewals include:
- You can securely store and organize your contacts in the same place, as well as set reminders for a variety of key milestones.
- You can upload contracts and set up online approval workflows to automatically send contracts to team members for approval as they are uploaded.
- You can share and collaborate with your team securely online and keep your conversations saved separately for each contract.
- As a contract manager, you can receive automatic notifications when contracts are due for renewal. This way, you will never miss a renewal date and will have sufficient time to prepare.
- Customers and vendors are automatically notified before the contract renewal date to have sufficient time to check and approve the renewal terms.
Never Miss a Contract Renewal Date with Contract Hound
Staying on top of contract renewals is a crucial part of managing a business. And while keeping track of contract reviews and renewal dates may seem overwhelming, you can make your life easier by using Contract Hound.
With our dedicated contract management software, you can store and organize your contracts in the same place, set up automatic notifications for contract renewal dates, and simplify the contract review process. Start a free trial today.