In today’s fast-paced world, contract renewal management is no longer a matter of best practice; it really needs to be considered a critical capability. Organizations have many contracts at the same time—vendor contracts, service level agreements (SLA), lease agreements, licensing contracts and more. Each of these contracts has an expiration date, and missing a renewal date could lead to considerable legal implications, fiscal consequences, and negative operational impacts. In this Blog, we’ll discuss why contract renewal management is important, common pitfalls, and proven techniques that ensure you never miss a date.
Why Contract Renewal Management is Important
Contract renewals are significant points of inflection. Renewals can involve potential evaluations of vendor performance, renegotiations of terms, or even choosing a new supplier. If an organization misses a renewal, an automatic renewal may force you to continue with outdated terms, higher prices or deteriorated service levels. In a regulated environment like healthcare or finance, renewing a contract can mean consequences of compliance violations or fines, or reputational disaster if you go beyond a certain period of time to complete the renewal. The considerations for renewal are important—they can even lead to budgeting and forecasting. Knowing those contracts are renewing will inform your organizational planning and resource allocation, and helps eliminate surprise expenditures.
Obstacles to efficient Contract Renewal Management
No Central Access Point: Many contracts are difficult to notice when stored in various email inboxes or physical spaces, which common practice is. The contract may not be located until renewal is too late.
No Tracking System: If there are no reminders or tracking notifications, the business can easily miss out on critical renewal timelines.
Manual Tracking Tools: Relying on outdated spreadsheets or calendars to track expirations is easy to forget and prone to human error.
Limited Access: When only one person or team manages the contracts, an unplanned absence can lead to substantial undocumented delays in policy execution.
Complex Internal Approval Workflows:
These obstacles can easily be overcome if you build a process that calls for proactive contract renewal management. The following are recommendations:
1. Centralize Your Contracts
Centralization is key. Implementing a centralized contract repository – whether it is cloud-based or a Contract Lifecycle Management (CLM) tool – should not only provide a single-source of truth for all contract repositories, but should also allow for easy searching and sharing between authorized individuals.
2. Automate Notifications
Utilizing a digital tool to set up renewal notifications that reminds your team members at a specific event will help simplify the contract renewal process. These alerts should ideally be set up at 90/60/30 days before expiry if administrative or renewal changes were to be desired. This should allow you ample opportunity to circumnavigate a contractual obligation that is not required if the team wanted to review, negotiate or renew at the latest time.
3. Maintain a Contract Calendar
Ensure that you have a shared contract calendar linked with your email or project management tools. Transparency across your teams ensures an ability to hold everyone accountable whilst also preventing ‘knowledge hoarding’ by any one person.
4. Embrace Workflow Automation
Incorporate workflows for approvals, legal review, and finance checks. Assuming that these items can be automated (and they can), manual processes understandably introduce renewal delay and hinder compliant activity.
5. Review Performance Well Before Renewal
Make a habit of reviewing contract performance and vendor levels of service well before renewal periods. This will help you build data and evidence to make clear decisions on whether to renew, negotiate or terminate.
6. Sort Contracts into Risk and Value
Not every contract is equal. Identify your high-risk or high-value contracts and make them your priority for establishing period vigilance. This makes sure you are prioritizing right and directing your attention to the areas that need it.
THE ROLE OF TECHNOLOGY IN RENEWAL MANAGEMENT
Modern CLM platforms are already available that feature dashboards, alerts when a contract is near expiration, workflows for negotiating and documenting renewal of a contract, and analytics. They can reduce manual mistakes and provide contract managers with information in real time to make timely decisions.
On top of this, they can also hook up with CRM, ERP, and finance applications to create a contract data ecosystem, and help identify the best state to make strategic decisions.
CONCLUSION
Contract renewal management can feel like an easy administrative chore, but in fact, it can vastly change your organization’s efficiency, cost structure, and risk exposure. By implementing a centralized repository for your contracts, automated reminders, and smart workflows to manage renewing these important business instruments, you can elevate renewals from reactive and rushed to planned and strategic.
In an era where missing a renewal could cost your organization millions in performance loss and overall penalties, being proactive isn’t just a thoughtful practice, it is a necessity.