How to Manage Automatic Contract Renewals and Evergreen Clauses
By David Parks, Director of Product Marketing
Ah, the dreaded evergreen clause. It’s the kind of thing that a buy-side contract or procurement manager wakes up thinking about in a cold sweat in the middle of the night. That’s because trying to figure out how to manage contracts with an automatic contract renewal is a serious business challenge that creates financial risk and can cost an organization real money.
“Did I miss the termination window for that agreement we wanted to cancel this year?”
“I need to remember to give IT at least 6-months’ notice on that software renewal so they have time to evaluate other possible vendors.”
“Why did we receive an invoice for a service we no longer need?”
Finding a solution to avoid an unwanted automatic contract renewal is one of the most common reasons prospects tell us they need our product. In fact, one customer recently told us that by avoiding just one auto-renewal our contract management software paid for itself. Now that’s a fast return on investment.
Download An Introduction to Contract Management Software to learn more
Let’s look at a few ways you can manage contracts with an automatic contract renewal using an intelligent contract management platform so that you never again have to run the risk of paying for something your business doesn’t want or need. It’s just one way that many companies — especially those in resource-constrained or highly regulated industries like in healthcare or energy – can be more fiscally responsible and cost efficient.
Insightful and Customizable Reports
Having easy access to real-time contract reports is a key part to successfully managing contract renewals, especially automatic contract renewals. You can customize the reports to your specific needs, easily share them with management or stakeholders, and if necessary, export the data to excel or some other application. You can run reports to monitor things like how many renewals are due each month, by contract type, vendor, value, or by another parameter you choose. This way you can capture an accurate and up-to-date snapshot of any and all contract renewals that your business will have to deal with which greatly helps with forecasting, budgeting, and other business decisions.
Automated Alerts & Alert Rules
It’s not uncommon for an organization to not realize a contract has auto-renewed until they receive an invoice from the vendor. Usually, by the time this invoice is received the termination window has closed. I was talking to a prospect just the other day who was dealing with this exact situation. The executive who owned the contract, which had an evergreen clause in it, had left the company. Since the company was using shared folders to store agreements, nobody else was aware of or had visibility into it. The finance team received the invoice from the vendor 30-days from the renewal date. However, when they tried to cancel the contract, they realized the termination window was 90-days from renewal, Hence, they were stuck in the deal for another year.
By using automated alerts and alert rules – available in our contract management software – this would have never happened. You can easily set up alerts based on any date field captured in a contract such as a termination or renewal date. You can then use a simple form to select when to start sending the alerts (before, on or after the date), how often to send them, who to send them to, and what format they take (emails, in-system notices, or both). For dealing with standard notice periods like a 30-day or 90-day notice, you can simply set up an alert rule and let the system automatically handle the rest.
Takeaway
Missing an automatic contract renewal due to an evergreen clause is something that should never happen to you or your business. Renewing a product or service that you had no intention of keeping is a completely avoidable risk. With contract management software, you easily eliminate this serious business and financial risk from happening by using reports, alerts, and proper contract version management practices. And just think, the ROI of our software could be achieved by eliminating just one missed renewal. That’s why implementing contract management software makes good business sense.
