Contract management positions and software have been on the rise for the last decade or so, guiding many legal teams through the process of creating, negotiating, and executing contracts.
These steps are a crucial part of the contract management lifecycle, but don’t represent a complete picture of what contract management can be.
Contract renewal processes are a key part of the CLM process, and excellent contract management relies on actions that happen after a contract is executed, like fulfilling obligations, value analysis and renewal.
The Importance of Contract Renewal Processes
Contract renewals are an often overlooked part of the contract lifecycle. Many management tools or plans will focus primarily on getting the contract to signature. What happens next is just as important as closing a deal.
Mismanagement of contract renewals can result in companies losing 5-40% of a deal.
How does mismanagement happen? It can happen to any organization through many different means:
- Staff changes over the life of the contract
- Poor tracking of the contract and key dates
- Inadequate reminder system
- Lack of communication between closers and the team managing the fulfillment and renewal steps
- Unclear responsibilities / lack of accountability
Poor renewal processes can lose key suppliers or customers if a contract terminates without renewing, or you may renew a contract you don’t need/want because the auto-renew was not tracked properly.
How to Manage Contract Renewals
Contract renewal management doesn’t have to be arduous or ambiguous. With a few consistent practices, you can be on top of your renewals and negotiate from a position of strength.
Track Dates in a Central Location
The first step in good renewal management is knowing when contracts are renewing. These should be kept in a central location so that, if staff is out of the office or there is staff turnover, the larger team can still see upcoming renewals.
Typically, the renewal date is tracked by the contract expiration date minus the renewal period. Pulling this key information at the start of the contract is the most effective way of making sure you catch it. From there, it’s best to give yourself a window to review the contract (or alert the customer that their contract is renewing). This “Renewal notice date” gives an appropriate window before the renewal date appears.
For example, if a contract expires on June 1 with a 30 day renewal period, the renewal date (date by which the contracting party needs to decide if they are renewing) is May 2. If you want to give 30 days notice to make this decision, your renewal notice date should be April 2. Contract management tools can make these calculations for you.
Automate your Contract Renewals
Contract management tools can also automate renewal processes. This auto-calculates the renewal notice date above and sends an alert to the relevant party/contact. The recipient of the alert can elect whether to renew or terminate the contract, after which, the relevant internal contact is alerted to begin work on that selection. Some organizations automate these steps further, depending on what level of control they need over the process. For some renewals, their contract management software will manage the whole process, auto-generating amendments and sending for signature. For other, more complex renewals, more hands-on opportunities are available throughout the renewal phase.