Most SaaS suppliers tend to favour automatic renewal for their contracts. Before agreeing to an automatic renewal, you need to consider the (a) preference of your organization’s procurement department, (b) the annual fee of the contract and the (c) criticality of the system.
Should you have an automatic renewal in a SaaS contract?
The answer like most legal answers – it depends.
There is no one size fits all when it comes to renewals. While some will swear by a manual renewal, others may prefer to have their SaaS contracts continue without any intervention.
How do you decide if autorenewal is right for you? Most companies have their preferences on how to manage the renewal process, so start there. If there is no clear policy on renewals, here are somethings to consider for the customer:
- How sophisticated is the contract management process? Are there reliable mechanisms in place to ensure that appropriate notice will be given for non-renewal?
- How critical is the system? Can you withstand an interruption to the service if someone forgets to renew the contract?
- How much are the annual fees? If someone forgets to give notice to terminate at the end of the contract period, how much will be at stake in annual fees?
My preference as the customer is to opt in for a manual renewal. In most cases, even if someone forgets to renew the contract, it is unlikely the supplier is going to terminate as long as the invoice is being paid. If you didn’t intend to renew and are invoiced, you can point to the fact that you did not provide a notice of renewal. Of course, the preference is always to have a strong contract management process in place and make sure that renewal notices are sent in time.
If automatic renewal is mandatory, I always try to get as short a notice period as possible to allow the client more room to terminate. In the end, one way of renewal isn’t inherently better than the other if you have a good contract management process in place that tracks renewal dates and notice periods.
To learn more and join in the discussion, check out my LinkedIn Post
