When you sign a contract, one of the more important aspects of the agreement is whether the contract will automatically renew. You may sign a one-year agreement, but if it is an automatically renewing contract, that agreement will extend past the renewal date if you don't take action to cancel it. Contract Lifecycle Management (CLM) solutions help by alerting you of an impending automatic renewal date.
This is an important issue for contracts between businesses and their service providers. Suppose an organization hires a consultant and agrees to a year-long contract that's set to automatically renew. If the signatory isn't aware of a pending renewal, he or she likely won't know that the service will continue into a second year. This can be problematic as the renewal date passes and a new year-long agreement begins. Not only will the organization be billed unexpectedly, it may negotiate with another party for the same services it is already receiving.
It Isn't Only Businesses Who are Affected by Self-Renewing Agreements
Pilates instructor experiences automatic renewal problem. This has been a problem at fitness centers across the country. One particular incident involved a gym in Scottsdale, Arizona that automatically renewed its member's contracts without their knowledge. Katrina Natori, a personal Pilates instructor, joined a boxing class at the gym and signed a six-month contract at $100 per month. When the six months were up, she stopped attending the class.
Natori spoke with the local CBS affiliate about the process. "At the end of the six months, the contract would be terminated because that's what she had told me," Natori said, referring to the person at the gym with whom she had established her agreement. "It was a six-month contract and it would just end there,"
Later on, Natori realized her credit card was still being charged because the contract automatically renewed without her knowledge. She had stopped going to that gym because she assumed the contract was up, so not only was she charged for a service she didn't use, she could have continued going to the gym from the time the six months were up until when she discovered the charge on her credit card.
Avoiding Missed Dates and Obligations
Ultimately, the issue was resolved and Natori received a $600 refund. While the relatively low amount of money involved may have helped with the resolution, businesses that find themselves in similar situations may not be so fortunate. If a company spends tens of thousands of dollars on a consultant or a service annually, and assumes at the end of the initial contract period that the agreement terminates, they could be in for a big surprise. If the service provider realizes the business is ultimately lost and unrecoverable, they may not be inclined to issue a refund and the ramifications could be significant.
Whether related to an individual or to a business, two suggestions can help avoid unwanted automatic contract renewals. 1) Read and understand the agreement you sign. All too often salespeople provide abbreviated summaries of the contracts they ask you to sign and abbreviated answers to the questions you ask, hoping to move a transaction through to conclusion. 2) Once you understand that a contract will self-renew, put several reminders in your calendar prior to the renewal date, so it does not self-renew without your knowledge. For businesses managing hundreds, thousands or tens of thousands of agreements, managing self-renewing contracts is more complex.
How Contract Lifecycle Management Solutions Help You Manage
Even if a business knows a contract is going to be renewed, with a myriad of contracts to manage, keeping track of every important date can be a challenge. Contract Lifecycle Management (CLM) solutions are designed to mitigate the possibility of missing an important date or contractual obligation. Self-renewing contracts can be monitored and tracked and notifications can be provided to multiple parties as deadlines and renewal dates approach. In this way, organizations that don't wish to renew services will know when they have to take action and will have plenty of time to do what's necessary to cancel the contract prior to the end of the desired term.
More Benefits Than Simply Helping Auto-Renewal Tracking
This functionality, offered by many CLM solutions, doesn't just benefit businesses that want to terminate services. Contracts contain many obligations and key dates that they must track and act upon. These include invoice dates, required report dates, deliverable dates, pricing escalation dates and contract re-negotiation dates to name, but a few. Using a robust CLM solution, a company need never be stuck with an agreement it is not satisfied with for another year, nor miss the opportunity, allowed by contract, to benefit from a price reduction tied to last year’s purchase volume. When notifications occur automatically to all the people responsible for such events, the responsible parties must work very hard to ignore an important task that must be completed. Properly implemented, sufficient people are always made aware of important dates, so they are no longer missed.
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