One of our clients says they are “hyper-allergic” to contracts that renew automatically. But what exactly is the problem with this kind of agreement? We can see at least seven reasons to care.
1. No renegotiation
The existing terms and conditions continue to apply when an agreement is automatically renewed, potentially with a price increase pegged to inflation. You miss out on the chance to renegotiate not just price but also other important conditions that could affect the level of benefit you get out of the agreement.
2. Paying for things you don’t use
As time passes, a company’s requirements change – new needs arise, while others disappear. An agreement covering a deliverable, subscription, licence, etc. can be extremely important for a company at a specific place and time. But new working methods, closures, downsizing or other circumstances could mean that what used to be an important agreement is no longer needed. When that agreement is renewed automatically, you carry on paying for things you no longer use.
3. Unknown agreement
Nordic employees are known for being independent people, and Nordic companies are generally characterized by having flexible guidelines. This fosters a dynamic organisation that can quickly change direction and adapt to altered market conditions. The downside is that employees at many levels in the organisation often enter into agreements and store the associated documents locally. As a result, the company is obliged to pay for deliverables that few others know about.
4. Duplicate and triplicate – year after year
When there is no central overview and control of agreements, organisations quickly end up purchasing far more of a particular item or service than they need. Automatic renewal of agreements means that the company, in practice, has no opportunity to establish an in-house sharing economy.
5. Drain on profitability
When you are unable to renegotiate the agreement, don’t need it, have enough already or don’t know about it, profitability just keeps draining away. Individually, the agreements are often insignificant. But when companies add together all the unnecessary expenses at every level, most will probably find sums that should have been going towards important investments or staying on the bottom line.
6. A consequential error in next year’s budget
When you don’t know about a contract that is automatically renewed, it automatically skews your budgeting. Such agreements and liabilities are a constant headache for CFOs.
7. Person-dependent hangers-on
When staff leave, they generally don’t give priority to sorting out all the commitments and contracts they have entered into on behalf of the company. However, automatically renewable agreements have no mechanism that automatically terminates them when their originator leaves, because they have been entered into with the company as a whole.
It doesn’t have to be this way. House of Control helps clients gain a complete overview of their contracts and commitments. Prices, contact person, duration and other conditions are always just a few clicks away. Our software, support, and contracts are available in Finnish, Swedish, Danish, Norwegian, and English.
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