The COVID-19 pandemic has left many organizations renegotiating contracts sooner than they envisioned due to the uncertainty in the marketplace and the changing conditions of business which, when combined, result in their trading partners being unable to meet the current deal terms. Contract negotiation is a difficult exercise at the best of times, because a great amount of time and effort is spent up-front in negotiating B2B contracts, but due to the pandemic expediting contact renegotiations, these challenges have been magnified. For example, contract renegotiation will open up the possibility of having to agree to less favourable terms than before. We have also found that companies tend to file their B2B contracts away and very little attention is spent in understanding and tracking their on-going performance. Businesses that fall short of monitoring their B2B contracts fail to maximise revenues, control costs and open their organisations up to a multitude of risks for their deals. They are also in a weaker position during renegotiations as the true benefit of their current deal is unknown. By looking at the wider picture when approaching contract renegotiations this will not only serve your interests better, but also improve collaboration with your suppliers. If you neglect the glaring issues, contract renegotiations in the wake of COVID-19 will mean missing out on new revenue opportunities for your B2B deals which could actually be the foundation to increase profits in the long-term!
Now we all agree that B2B contracts are typically renewed annually or when they approach the end of their agreed timespan. However, there is a crucial difference between simply renewing an agreement and renegotiating for different terms! Typically, renegotiations are infrequent but tend to be triggered by the growth or decline of one of the trading partners – are there new locations to be considered? Have entire new product ranges been launched? Did you grossly overperform under the last contract? It is common to avoid renegotiating new terms for active deals - particularly if things didn’t go so well the last time you tried! A return to a contract negotiation typically indicates that there was an error in the original B2B contract or that the final contract didn’t meet the organization’s needs. However, sometimes a bigger problem (like a pandemic!) means that the terms of the original B2B contract can’t be met as planned and neither party gets the intended benefit. In this case, there is no choice but to go back to the table and renegotiate our B2B contracts. Usually there may not be any urgent reason to begin contract negotiations for your deals, and you might tend to leave things as they are for the time being. Although this may not be the best idea, because things can evolve in the supply chain very quickly, meaning you could miss out on a rebate opportunity if you weren’t paying attention to what a new B2B contract might offer you. Having the ability to easily negotiate changes or smaller Ad Hoc deals could dramatically increase your earning potential. Although the pandemic is a rarity, we should treat contract renegotiation as an ongoing part of a collaborative relationship with all suppliers. When we do this, our relationships become better and we put ourselves in a much stronger position for future contract renegotiations.
Although renegotiating contracts during these difficult times may be an uncomfortable task, businesses who find themselves unable to fulfil their B2B contract obligations as a result of COVID-19 should first contact the other trading partner to renegotiate a compromise if possible. You’ll probably find that they too will have been negatively impacted by COVID-19.It is imperative that both sides are willing to be flexible in renegotiating a new deal that serves the interests of all trading partners. To best protect your business during these challenging times, understand the current situation of your vendors and suppliers, and review B2B contracts to identify areas where you can save money and mitigate risk.
For better contract renegotiations, the following tips are worth keeping in mind:
If these unprecedented times have told us anything, it is that we’re all in this together! Let’s try to stop thinking of contract negotiations as adversarial competitions, trying to outdo our trading partner, and instead think of them as a collaborative way to achieve reliable growth, nurturing trading relationships for the future. With Enable’s collaboration platform you can get clear visibility of the proposed terms, view and interact with your B2B contracts – supplying additional information and data - and communicate with your trading partners on one central platform making managing B2B renegotiations much easier and much more reliable. Our aim is to provide a contract renegotiation hub for you to nurture your trading relationships and facilitating seamless renegotiation if your proposed deals aren’t quite right! Having a more flexible approach to B2B contract renegotiations, with more of a focus on shared benefits (laying the foundations for future long-term strategic partnerships) rather than individual losses, can offer that all important first step towards business recovery and better cash flow whilst simultaneously helping to improve the security and stability your business can expect if similar economic turmoil faces the world again. Collaboration is in everyone’s best interests.