Make 2018 the Year You Stop Overpaying Vendors01.03.2018
You’re closing out the year, reflecting on things still on your To-Do List while actively planning and pursuing 2018 projects and goals. That one pesky, seemingly monstrous task glares at you day after day, week after week: Renegotiate vendor contracts coming up for renewal.
You meant to tackle that beast, but other things just kept coming up. And the time it would take to research ideal terms and somehow figure out what other banks and credit unions are paying for the same services has driven you to inertia. You’re seriously considering just letting the contract auto-renew so you can take that item off your list and not have to worry about it for years to come. You’re happy with your core vendors anyway, so why not?
I’ve seen this train of thought way too often, and I can’t let you do that. I can’t let you throw away money — which could be much better used within your organization — and continue to pay a vendor whatever they ask, without them earning your business.
In my experience, time and a lack of knowledge about how and what to negotiate with a vendor are typically the main reasons many institutions leave potential savings on the table by letting old contracts automatically renew or accepting mediocre terms offered by their existing vendor. Unfortunately, during this very busy time of year negotiating contracts is not often seen as a priority.
Have Someone Else Swallow that Frog for You
So you don’t have the time or experience to negotiate a favorable vendor contract? No problem. Companies hire consultants and outsource time-consuming tasks every day. A professional audit of your existing contract by an expert can help to uncover areas where improvements can be made. And having an experienced negotiator on your side can lead to savings opportunities, improved contract terms, service upgrades, signing bonuses and increased revenue potential — especially if you’ve never had a third-party contract review.
I often ask clients who are wavering on whether or not to enter into a credit or debit card contract review to consider the following questions:
- Are your account holders requesting card features that your current brand doesn’t offer, such as the ability to turn their credit or debit card off from a mobile app?
- How do you know if you’re paying more for your services in comparison to other local institutions?
- What would you do to improve your bank or credit union and better serve your account holders if you had an extra $25,000 per year to allocate anywhere? How about an extra $50,000 per year?
Think about those questions for a few moments.
Now, aside from time and lack of familiarity with the intricacies of dealing with vendors, consider why you would ever stay with one without even exploring other options or asking your current vendor to earn your business.
Think Logically, Not Emotionally
The key to winning at contract negotiations is to use logic.
For example, take your debit and credit card brand agreements. When was the last time you seriously thought about why you are using your current card brand? The most common answer I get when posing that question to clients is, “We’ve just always used brand X or Y.”
While you may feel an obligation to your current brand, the truth is you might not be locked into any contractual agreement with this provider if the decision on which card to use was made years ago, based on the advice of your card processor.
For one client, a soon-to-expire debit card contract that had been initiated through the institution’s card processor led to an opportunity for substantial savings and income opportunities. Their management team contacted us to look at the renewal contract the processor had prepared. Without in-house contract negotiations expertise, they weren’t sure whether or not the terms represented the best deal.
After reviewing the contract, we determined that there was an opportunity to get a much better offer by negotiating directly with the card brand providers to see what they would propose. While one company offered a generous signing bonus, a competing brand matched that amount and went further to include various discounts for card processing.
This was a surprise to organization’s managers, who were not aware that it was possible to get additional incentives. As a result, the financial institution signed a contract directly with its original provider and is on track to save more than $700,000 over the life of the agreement.
On the other hand, you may be very satisfied with your current vendor. But don’t let warm fuzzy feelings cloud your business sense — you could still lock in a much better deal from your existing provider before your contract renews.
With another client they hired us to successfully negotiate their card processing agreement. They knew from the start that they wanted to stay with their vendor, but called on outside help to secure better terms. With our knowledge of what other institutions pay for similar services, we were able to negotiate $27,511 in annual savings (a 23% reduction in costs) as well as a $30,000 signing bonus and $6,800 in retroactive savings.
The moral of the story in both cases: a vendor must earn your business, and is often willing to offer concessions to get or keep you as a customer.
It Pays to Have an Expert on Your Side
When it comes to reviewing your service contracts, look for an expert negotiator who:
- Can save you time by doing all of the time-consuming legwork, contract reviews and negotiations
- Is knowledgeable about what constitutes a favorable deal, based on experience working with other institutions comparable to yours
- Uses existing relationships with vendors to cut through the red tape, keep the process moving smoothly and get the best possible results
As we close out 2017, it’s time to get that distressing item of contract negotiations off your to-do list and put it in the hands of experts in the field.
A professional contract review could help to offset your expenses and ensure better service for your account holders in 2018 and beyond.
Kelly Flynn is national sales director for John M. Floyd & Associates, a consulting firm that helps credit unions improve their performance and profitability.