What is contract renewal and dealing with renewals?

What is contract renewal and dealing with renewals?

What is contract renewal and dealing with renewals?

1. What is contract renewal and dealing with renewals?

When a business enters into a contract for products or services with another business this is usually based on some form of an agreement. When this agreement comes to an end the options are either to continue at the end of the fixed term contract or initial term as part of contract renewal or alternatively bring the contract to an end depending on the obligation under certain clauses.

2. When a contract renewal does not happen?


For example, a software as a service business, can be demonstrated by protecting recurring revenues but also any further revenues which come from any upselling either additional services or increasing an existing service to the next level.

If you are dealing with suppliers, this may be the outcomes of any supply chain strategy commitments agreed e.g. consolidation to a single supplier model, as part of procurement process. These types of objectives help to drive improvements in the business.

In summary, putting in place contract renewals process helps to align the business and its individual to a single approach. This assists the business to establish good governance. The value which is being provided is the quicker conclusion or delivery of the contract renewal and measurement of any return of investment such as revenue increase or operational efficiency.

3. Which contracts are coming up for contract renewal?

Let’s say your company have a number of lines of business which you need to support with a couple of hundred contract renewals the first place to start is see if there a tool that can help you produce a report of what’s currently there.  

3.1 Understand which side contract renewals sit on.

Where a business is depending on the contract renewals on the sales side for example in a software as a Service (SaaS) business or the buy side e.g. procurement.

3.2 When you don’t have a single view.

If there is no contract management tool in place that can provide a update and your business is not going to implement such tool in the near future then start collecting a view it can be as simple as building one in excel. If you need assistance a contracts manager can get you organised.

3.3 There are hundreds of renewals to deal with.

The large numbers of contract renewals can be overwhelming for some in terms of volume. Going back to the earlier point about a single view this will help you manage the large volume and think of ways in which you are going to deal with this.  

4. What to look out for in contract renewal?

The first question that comes to mind is do we have a contract renewals process? If yes, this should tell you the various renewal steps and some of the time frames in advance. In the absence of a process you may want to create one or include for example on the sales side in a sales play book.

The reason for doing this is that the business can demonstrate that renewals process has been kicked off in time and reminders are sent. Also, that each individual within the business is aware of the process and steps which follow.


4.1 What does the existing contract terms say about contact termination or renewal?

It is also worth checking out the contract terms to consider the contracts renewal mechanism under termination. If there are longer periods for example, then you want to plan ahead if the business is going to go down a different path than just simply renew. Along with this consider what other options are there.

Where there is an automatic renew clause, this means the contract auto renews. The way this operates goes down to its wordings. Where an automatic contract renewal wording is not there then contract termination could be planned based on the rest of the termination provision allowing this.

If you want to terminate before the renewal is due make sure can under termination of contract this is usually planned in advance followed by a written letter terminating the contract within given periods therefore it’s a non-renewal.  Take time to correctly draft the letter terminating contract.  The contract termination should make is clear if there are any payments due.  If you are dealing with any exit stay on top of these commitments.

4.2 We don’t have a copy of the contract.

The copy of the existing contract that you want to renew is missing and you only have the last signatory page as a digital copy. This gives you a very little to go on and what the business has signed up to. There are number of steps which can be taken to see if a full copy of the existing contract can be located.

In the absence of the contract try to find out key commitments that you as a business have signed up to. Then considerif there is enough time to exit. If you are looking to renew whether  if new paperwork can be put in place to improve your position.

4.3 Review of the email communications.

If you can consider any emails for the last or current contract renewals which may have been worked on. Email chains can help to understand how the points were decided. At times you want have the full chain of emails and you may require further clarity as to such decision being reached on a particular item.

4.4 Has the business budgeted for contract renewal?

If you are wanting to do contracts renewal for example I.T. security services, which is about to expire in week, and you’d run to the finance team to confirm this spend. They then turn around that they are not aware of this and its not budgeted.  Planning for the contracts renewal means that this is a spend which is factored in future budgets to avoid such situations.

Also, you could come unstuck if this renewal is not part of the overall business contract renewal strategy for that year and you have not terminated in time.  If you can establish the need and approval early on with in the business and its likely to continue then the renewal becomes a little easier to deal with.

If the contracts renewal you are working on is planned for it allows you to then to focus on getting internal finance or other key stakeholders approval. Then the business case be also be created and presented for final approval near to the time when renewal is due. 

4.5 What about Multiyear contract renewals?

Where there is a multiyear contract if this is with you customer you want to ensure depending on what’s in the contract either at time before any exit notice periods kick in or as agreed time frames with the sales and finance leadership.  

4.6 How to deal with short contracts.

This very much depends on the contract commitments on a case by case basis for each of these. If the short contract has fifteen days for expiry term notice, then if it renews having a thirty days renewal period is misaligned.

As a business again you many want to agree the periods with key stakeholders as to which ones you want to standardise.

5. Why are auto reminders important  for contract renewals?

Depending on your CRM systems any auto reminders is something which can be scripted and tested and capture the automated renewal reminder emails.

If you have a contract management system for suppliers this can also be set up to automate an email reminder to the team as to when a contract is coming up for renewal allowing you time to discuss this within the business.

6. What is the contract renewal strategy?

Do you have a business senior leadership objective aligned as part of the renewals strategy?  If yes, then see whether this can be aligned to contracts renewal throughout the year. Where there is no strategy in place consider what can be created with the senior leadership buy in.

7. What happens if the contract does not renew?

The contract will be brought to end subject to a notice if it is no longer going to be continued.  There may few items waiting to be sorted such as any remaining payment liabilities and when the last day will be. On larger contracts there may be an exit plan or transition support which may be required if migrating to a new supplier or going in house.

Your business may have support requirement in one or more area why not talk to us and see if can assist with your contracts or introduce savings with our consultancy contract management service by email to info@certaintysolution.com or request a proposal from us.

Read Our Contract Case Study Read Our Master Contract Case Study Get Your Free Consultation