Modern businesses run on software-as-a-subscription products nowadays, which means that managing contract renewal can become a full-time job. How do you make it easier?
There’s nothing worse than realising a few days too late that your contract with a particular vendor has automatically renewed, and you’re locked into an expensive arrangement for another year.
In this page we’ll explore the mechanics of contract renewal, including autorenewal of contracts, and how to manage those obligations more effectively. Use the menu below to navigate this resource.
What is contract renewal ?
Contract renewal is the process through which the initial term of a contract expires, and the parties agree - either actively, or passively, through automatic renewal - to 'renew' the term of the contract so that the arrangement continues, and the contract remains enforceable for the new period. Contract renewal is a good opportunity to renegotiate the contract's terms, if you'd like to change your commercial relationship ahead of the next period during which you're under contract.
Commercial contracts, like NDAs, MSAs or vendor agreements, typically include explicit language to define the length of the contract term. This might be a fixed date or, as is common in subscription agreements, the contract might have an initial term and then a provision that means it will automatically renew if neither party takes action.
You can see an example of this kind of language below:
Click above to see this Master Services Agreement in Juro.
This isn’t unique to the business world, of course - as individuals we encounter the same kind of arrangement with our cellphones, streaming providers, or other services that we buy on a subscription basis.
If the contract renewal date, as specified in the contract, passes, then both parties are effectively bound to the same terms for another year (or whatever term is specified in the contract).
Contracts might also be renewed ‘manually’ - each side might realise that the agreement is set to expire soon, and discuss the terms of a new arrangement, or decide to mutually terminate.
The automatic renewal of contracts has advantages and disadvantages, as we’ll discover below. It also represents a particular challenge to those tasked with managing the renewal of contractual relationships in a business - typically legal and procurement teams, or a contract specialist, although others may be affected too.
Advantages of automatic contract renewal
Setting up contracts to auto renew has advantages for both parties.
Less friction: there’s no paperwork to worry about, so services should be contracted faster than if there were to be manual renewal
Less negotiation: if parties are happy with the current terms then letting the contract auto-renew avoids them having to go through negotiation and redlines - which means more speed and fewer meetings
No service interruption: automatic renewal means services can remain available throughout, without a break for parties to work out their future arrangements
Easier revenue capture: this is obviously an advantage mainly for the vendor, but autorenewal of the contract means they can guarantee another year of revenue without having to deploy the sales team
Easier forecasting: again, for the vendor, once the notice period has passed for termination, they’re able to forecast revenue for the year ahead without needing to worry about the contract terminating
However, there are downsides too 👇
Disadvantages of automatic contract renewal
An automatic contract renewal process can lead to headaches for both parties if managed poorly.
The lock-in: the most obvious pain point is that if you miss a renewal deadline, or the notice period before it, you can get locked into an expensive contract for another year (or longer) without realizing
This can be painful for the vendor as well as the customer - nobody want to be stuck in a commercial relationship, knowing the other side is there against their will
Inflexible terms: both parties might have been happy to continue the relationship, but on different terms, and now the contract has renewed, they’ll need to negotiate and vary it in order to make changes
Volumes: a business can easily find itself managing dozens or even hundreds of contractual relationships, depending on the stage and size of the company - making it difficult and unwieldy to keep track of upcoming contract renewals
These difficulties can lead to the souring of relationships between contract parties, as well as unwanted costs and obligations. Fortunately, modern contract automation platforms have developed features that help you to manage the contract renewal process and avoid nasty surprises.
How to manage the contract renewal process
To manage automatic contract renewals, so you always stay ahead of forthcoming deadlines, you should set up automated reminders that will notify you well in advance of your renewal deadline, so you can decide whether or not you'd like to renew, renegotiate, or even terminate the agreement.
To do this easily, you need a Juro workspace for your contract. Watch below to see how simple renewal management is in Juro 👇
So how do you do it?
As you create a contract, or manage it through the workflow through approval to electronic signature, you’ll notice that significant dates can be tagged as smartfields in the contract:
Tagging the contract this way means that the relevant field contains metadata, which is searchable and can be leveraged in different ways across the application.
In this case, by clicking on the date, you can activate date reminders:
By sliding the green dot to the appropriate point on the slider, you can choose how far in advance of the relevant date you'd like a reminder to be sent - whether that's a week, three months, a year, or whatever notice period works for you.
You can also select and add the parties who'll get the email reminder. In this case, Tom will receive a reminder email on the 4th of August 2021, three months ahead of the contract renewal in November of 2021.
If we switch to the table view in Juro, where teams can get a broader picture of the contracts they manage, we can add a 'Renewal date' column to the table, and see which contracts are scheduled to renew and when:
This allows the users and collaborators in the workspace to stay on top of renewal dates at scale - aside from the regular email reminders they'll received.
Get started with a more effective contract renewal process
If keeping track of contract renewals is becoming difficult for your team as the business grows, you might benefit from automated renewal reminders that prevent any nasty surprises. To find out more about managing your contract renewals, hit the big button below and get in touch.