MOST COMMON MISTAKES made by finance, legal and contract management departments …
Automatic Renewal Clauses (“ARCs”) or AUTORENEWALS can be golden for business. But for all their perks, ARCs are notoriously problematic. They may irritate customers who’ve missed the termination window, trap businesses in undesirable ongoing agreements and undermine the validity of entire contracts. They act to perpetually renew a contract when no notice has been given to terminate it. So how can a business ensure they manage their autorenewal contracts to avoid termination penalties, increased fees and being locked into an unwanted contract.
Keys to Managing Auto Renewals, Todd Larsen, CEO
3 Keys to Managing Autorenewal Clauses
When you sign a contract set a recurring alert as a reminder to review the agreement. Organizations especially those with multiple locations have numerous contracts and agreements. Managing them ALL can become overwhelming. In most cases after the contract is signed it is FILED and FORGOTTEN! Therefore, managing every contract and agreement is a must or the organization can easily miss autorenewals costing them thousands.
Review the contract portfolio completely on a periodic basis. While it is certainly important to negotiate the best bargain for the organization, contract risk management increases IMMEDIATELY AFTER contract execution. Collecting autorenewal contracts with an unspecified duration for analysis can be TRUELY illuminating! Questions to ASK …
- What percentage of all contracts are autorenewals or unspecified?
- How long ago was the oldest review?
- What types of contracts are auto renewed? What departments, divisions, or subsidiaries are producing the most autorenewal contracts?
If you chose autorenewal contracts TAG them appropriately. One of the MOST COMMON MISTAKES made by finance, legal and contract management departments is to open the spreadsheet of contract and leave the “expiration date” blank. With a blank entry it is not clear whether is was forgotten or if an expiration does not exist.
Most organizations have autorenewal contracts in their portfolio. Chances are that no one knows how many, how much money is at stake, and what the consequences are. With three simple steps above you can help your organization master these challenging agreements.
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