Ever signed up for a service like software, equipment leasing, or a vendor contract, only to realize it has quietly renewed itself? Those are autorenewal contracts—sometimes called “evergreen” contracts—and they can be a real headache if you’re not paying attention. They keep going unless you actively cancel them, and the fine print can trip you up big time. Let’s break down some of the biggest risks these contracts pose for businesses, especially when cash is tight or you’re juggling a million things.
Missing the Cancellation Deadline? Ouch!
Picture this: you’re using a software service, but you want to switch providers. The catch? You’ve got to cancel within a specific window—usually 30 to 90 days before the contract ends. Miss that, and boom, you’re stuck for another year or even three! That’s money you didn’t plan to spend, especially if you’re a small business or startup with a lean budget. It’s super easy to lose track of these deadlines, particularly if your team’s stretched thin. The fix? Set up a simple contract tracking system to stay on top of renewals and cancellations.
Acceleration Clauses: A Nasty Surprise
Some autorenewal contracts come with a kicker called an acceleration clause. This means if you try to cancel after the contract renews, you might have to pay the entire remaining balance upfront. Imagine leasing equipment for three years, missing the cancellation window, and then owing the full amount for the renewed term in one go. That could be thousands of dollars you weren’t ready to shell out. These clauses hide in the fine print, so read carefully and try to negotiate them out before signing.
Cashflow Woes? No Relief Here
If your business hits a rough patch, you might want to cut costs fast. But autorenewal contracts can make that tough. Let’s say you’re a retail shop paying for point-of-sale software you don’t need anymore. If the contract auto-renews, you’re stuck paying for it, even during a slow season. That lack of flexibility can hinder your ability to pivot when money is tight.
Sneaky Fee Hikes
Here’s another gotcha: some contracts let the provider increase fees when they renew. In some cases, the increase is limited to a certain percentage; in others, the increase may be at the providers’ sole discretion. You might think your subscription will cost the same, but then the new term hits, and your bill jumps 10-15%, throwing your budget out of whack. To avoid this, push for terms that cap fee increases or require clear notice before they kick in.
Mergers, Acquisitions, or Closing Shop? Still Stuck
Autorenewal contracts can make big business moves a pain. If your company gets acquired, the new owners might inherit a contract they don’t need. Or if you’re closing your business, you could still be on the hook for payments, especially with an acceleration clause. These obligations can lower the value of a deal or leave you with more liabilities than expected.
Employee Turnover Can Bite You
If the person who handles your contracts leaves, things can slip through the cracks. Say your operations manager was tracking a maintenance contract for machinery, but they quit, and nobody picks up the slack. Next thing you know, the contract renews, and you’re paying for equipment you don’t need. This happens a lot in businesses without a solid system for managing contracts. Share the accountability across a few team members to avoid this trap.
How to Stay Ahead of the Game
Don’t let autorenewal contracts catch you off guard. Here’s how to protect your business:
- Read the Fine Print: Get your lawyer to check out autorenewal terms, cancellation windows, and any sneaky clauses before you sign.
- Negotiate Better Terms: Ask for shorter renewal periods, clear fee hike notices, or no acceleration clauses.
- Track Deadlines: Use a calendar or contract management tool to keep tabs on when you need to act.
- Plan for Big Changes: Factor in these contracts during mergers, acquisitions, or closures to avoid surprises.
- Train Your Team: Make sure more than one person is managing (or at least aware of) your contracts, so you’re covered if someone leaves.
Autorenewal contracts can seem handy, but they’re loaded with risks. Missing deadlines, getting hit with acceleration clauses, or being stuck with unneeded services can drain your budget and limit your options. Stay sharp, read the fine print, and set up systems to keep these contracts in check. Have questions about your business agreements? Reach out to our team—we’re here to help you dodge these traps!
