Contract Renewals: Everything Your Business Needs to Know
Contract management software helps businesses streamline contract renewal processes. You’ll find it difficult for your business to become profitable and successful if you’re consistently searching for new partners or vendors each time a contract renewal is missed. When it comes to sales, you should find a partnership between contract renewals and customer retention. Without customer retention, businesses struggle to succeed.
There’s a direct connection between contract renewals and overall business efficiency. According to a report by Aberdeen Group, organizations that are considered “best-in-class” have 56% of their contracts renewed every year, while other companies have a 25% contract renewal rate.
What are contract renewals?
Contract renewal is the last stage in a contract’s lifecycle. When an agreement comes to an end, parties may decide to continue the business relationship. They could do this by either continuing with the terms of the old contract or negotiating new terms. Some contracts renew automatically, but the agreement may state how it can be terminated or renegotiated.
Contract renewals are vital opportunities for your business
Contract renewals present an opportunity to reflect on the changes in your organization’s progress, strategies, goals, and values in business arrangements. If your organization has experienced enormous growth, you’ll be in a stronger position to renegotiate terms at the time of renewal.
Maximize business relationships
World-class businesses build solid relationships with their partners. Contract renewals provide an opportunity to maximize an already existing business relationship. Having a proactive approach to renewals can be a game-changer in your contracts’ lifecycle management strategy. Business partners will recognize your organization’s CLM platform as an indicator of efficiency.
Save valuable time
Every time your organization renews a contract, you save time that would have otherwise been used for sourcing new business partners. When contracts are renewed, you can focus on reaching out to new customers. You’ll save time and resources by avoiding renegotiations with old customers, which can lead to less favorable terms for you.
Stronger contract management
“Best-in-class” businesses routinely outperform other businesses in contract management. Other insights of stronger contract renewal management include:
- “Best-in-class” businesses store 78% of their contracts in a central, searchable repository. For other businesses, only 34% of their contracts were stored here.
- “Best-in-class” businesses renegotiate 49% of their contracts annually as opposed to other businesses at 20%
Preparing for contract renewals
Here are some tips that will help you prepare the next time you need to renew a contract:
- Be brutally honest when critically assess the value the contract has provided
- Note the challenges your organization grappled with while implementing the contract
- Write down the things that have internally and externally changed in your business
- Decide how the contract can be tailored in light of the things you’ve identified
The revenue risk of missing contract renewals
Poor contract management can lead to missing contract renewals and can cost businesses a staggering amount of money. A survey by World Commerce and Contracting revealed that poor contracting managing cost organizations up to 9% of their annual revenue.
To understand the cost of missing contract renewals, think about them in two ways.
- Some contracts provide that the agreement will renew automatically. The risk here is that your organization could end up trapped in an agreement that is no longer beneficial to you. If this happens, the result can be a loss of revenue as you may have found an alternative that serves you better.
- In other contracts, parties agree that the contract will come to an end on a set date. Missing the option to renew is the risk for this instance. It means your company loses the chance to address the challenges you encountered while performing the contract and potentially renegotiate favorable terms.
Reasons contract renewals are missed
Missed renewals and poor contract management lead organizations to lose out on opportunities and advantages. There are a few factors that explain why contract renewals are missed.
Lack of a centralized depository
In the past, contracts were not in a centralized depository. They were scattered in emails, cloud storage, and file cabinets. It’s not surprising that businesses have spent a lot of valuable time and money just to find missing contracts. This kind of inefficiency means that many businesses will miss contract renewals simply because they were difficult to locate.
Lack of an effective way to track contracts
It is the normal practice is to initiate contract renewal at least 30 days before the end of the agreement. You need to know when the contract is about to expire so you can prepare adequately and initiate renewal before the contract ends. Businesses often use spreadsheets to track contracts. Usually, someone is assigned to keep track and indicate when contract renewals should be initiated. This kind of practice can lead to a high probability of forgetting to renew.
A report in the Journal of Contract Management dropped an eye-popping fact: 71% of companies are unable to find at least 10% of their contracts. You may not know the right time to start a renewal if your organization is unable to find a contract.
CLM helps you track contract renewals
Contract process automation is the way forward. Contract renewals can have a significant impact on your business operation and should be approached seriously and strategically. Organizations with consistently high contract volume need a solid renewal process that can be quickly deployed and seamlessly integrated across all departments.
Relying on employees to manually track contract renewals is unwise. The probability of some contracts slipping through the cracks is inevitable. Manually tracking contract renewals is inefficient and cost prohibitive.
The situation is crystal clear. Your organization needs contract lifecycle management software with enough functionality to deal with the high volume and complexity of your contracts. The proper CLM software will make sure nothing is missed, including contract renewals.
Perhaps the greatest strength of contract lifecycle management software is the visibility it gives to your contracts. Creation, approval, execution, and renewal are all important entities of CLM. If a contract is visible and easily found, it can be managed and well-tracked.
Track contract metadata through Ironclad repository
Remember, contract renewals are missed because they’re not in a common repository, they are hard to track, or they are lost. Ironclad helps you manage contract renewals in the following ways:
You’ll have one single repository for all your contracts
Ironclad’s contract lifecycle management software gathers your contracts in one single, organized repository. No contract will be lost and no time will be wasted looking for contracts as now they are all in one secure place.
It gives you easy access to contracts metadata
What happens when you want to find out information in a particular contract? Traditionally, you would have to sift through your organization’s email inbox, cloud storage, or hard copies to find the contract. Then you would have to pore over it to find the information you need.
Ironclad’s CLM simplifies the process with a built-in mechanism that helps you quickly find the exact contract information you need in a matter of clicks. Ironclad’s contract lifecycle management software will increase your team’s efficiency, productivity, and resourcefulness.
Unleash the power of Artificial Intelligence in contract renewals
Many businesses focus on creating and signing contracts. However, top-of-the-line businesses know that executing contracts is only the first step. Contract renewals must be approached strategically, so it’s important to know when a renewal is approaching and have the time to adequately prepare for it. Ironclad’s CLM software, which includes a notification feature, will provide timely reminders of renewals when you need them.
No more getting stuck in unsavory agreements, missing contract renewals, or renegotiating without adequate preparation. You’ll be automatically reminded to kick-start contract renewals at the appropriate time or to terminate the agreement. You also have the flexibility to decide when you should be reminded. With automated contract renewals tracking, Ironclad eliminates human error and gives your team the accuracy they need to track contract renewals.
Ironclad’s CLM software is designed to handle complex business contracts from start to finish. You’ll be able to streamline your workflow, gather your contracts in a single repository, and give high visibility on your contracts. Imagine the opportunities that can arise when your contract lifecycle management is fast-tracked. Take the first steps in improving your business’s chances of success and benefits. Visit Ironclad and find out how you can increase your contract management efficiency and never miss an opportunity to get more out of contract renewals.
Table of contents
- What are contract renewals?
- Contract renewals are vital opportunities for your business
- Preparing for contract renewals
- The revenue risk of missing contract renewals
- Reasons contract renewals are missed
- CLM helps you track contract renewals
- Track contract metadata through Ironclad repository
- Unleash the power of Artificial Intelligence in contract renewals