Operational Insights

FIVE YEARS IS A LONG TIME

OPS-BOX Business Consultant, Pam Johnson takes a look at Cost and Contract management and the potential to save your business some cash as we head into the new financial year.

Whilst reviewing our ICT costs I was disappointed to discover that one of our suppliers has General Terms & Conditions (With Hire) for rented/managed ICT services allowing a five-year automatic contract extension with a 90-day notice period.

Admittedly, if you are defined as a Small Business, the automatic contract extension is reduced to 12 months.

In my opinion, if you are confident in the quality and competitiveness of your service provision, I can’t see any need to force your customers to stay with you in a long-term contract just because they have forgotten to provide notice of termination or called you to negotiate renewal terms.

Arguably, once you have completed the minimum term, a rolling 30-day or 60-day notice period is a great way of encouraging your customers to stay with you as why would they leave if they are happy with your price and your service?

Isn’t good business all about Relationship Management?

Wearing my sales hat, from a supplier’s perspective, a customer contract coming up for renewal is an ideal opportunity for the supplier account manager to make contact with the customer, negotiate new terms and find out whether they have any other requirements that you can help them with?

Surely this is the perfect time to sell-up and gain a greater share of your customer’s wallet?

Even if there aren’t any immediate new requirements, you’ll have secured some goodwill, demonstrated good relationship management and be in a much stronger position to ask for referrals.

Sign in haste, repent at leisure!

Wearing my procurement hat, from a customer’s perspective, its really important to read the small print in any kind of long-term rental agreement.

Yes, there are pages and pages of tedious small print but if you do nothing else before you sign, skim through and check the contract minimum term, the notice period and whether there is an automatic contract extension (or contract rollover)?

Then, if you’re not happy with any terms, you can negotiate amendments before signing and ensure that any long-term contracts you put in place are aligned with your business growth plans.

Time flies - Set Reminders!

If you don’t have a supplier contract management system in place, then set calendar alerts for each long-term contract to remind yourself to provide notice 30 days before the notice period deadline. This gives you plenty of time to review your costs, shop around and change suppliers if need be.

Obviously, one would hope that the incumber supplier has already called you to discuss your renewal well before the alert pops up!

Help is at hand

If all this has left you feeling slightly concerned about your own long-term contracts, don’t panic!

Consider engaging a suitably experienced procurement specialist or business consultant to do a cost management review for you.

You may be surprised at the potential cost savings available both in and out of long-term contracts.

If you would like support reviewing your contracts and costs, you can contact Pam on pam@ops-boxgroup.com