Contract Renewals Gone Rogue: Protecting Your Credit Score

Credit scores probably aren’t talked about as often as they should be. However, in business, a strong credit score turns ‘maybe later’ into ‘how soon can we approve you?” On the other hand, bad credit doesn’t just buy you higher interest rates, it buys you awkward conversations with vendors you can’t afford to lose! 

The Importance of a Strong Credit Score 

A strong credit score is important to any company because it enhances the company's credibility and trustworthiness in the eyes of financial institutions, investors, and potential clients. When a company has a good credit score, it signals to banks and lenders that the company is financially responsible and reliable, making it easier to secure loans and lines of credit at favorable interest rates. This access to capital is essential for funding growth initiatives, such as expanding operations, hiring new talent, or investing in new technologies. 

Additionally, a good credit score can open doors to better business relationships and partnerships. Vendors and suppliers are more likely to offer favorable terms, such as extended payment periods or discounts, to companies with a strong credit history. This can help the company manage its cash flow more effectively and reduce operational costs. Furthermore, a high credit score can be a significant advantage when bidding for contracts or competing in the market. Clients and partners often prefer to work with companies that have a proven track record of financial stability, as it reduces their risk and ensures a higher level of service and reliability. 

Managing numerous contracts, SaaS subscriptions, renewals, and even auto-renewals is a critical component of any business, and it is no easy task.  It’s no wonder, considering the average SaaS portfolio has 342 apps.¹ If not managed properly, there can be significant financial implications, including potential impacts to a company's credit score.  

How Automatic Renewals Can Harm Credit Scores 

The risks associated with auto-renewals include loss of critical negotiation leverage, lost opportunities to right-size contracts, mandatory cancellation notices, and cancellation penalties. With so many contracts at play, these risks can quickly multiply, leading to unplanned (and unwanted) financial obligations, potentially straining the company's budget and financial situation as a whole.  

Ongoing payments resulting from auto-renewals may lead to consistent cash outflows, potentially straining a company's financial situation. Failure to meet payment terms due to unexpected renewals can negatively impact credit scores. The same can be said for contract terminations. Oftentimes, contract terminations lead to unpaid balances, which obviously have negative effects on your company’s payment history. The result, again, is a lower credit score. 

The Implications of Poorly Managed Annual Contracts  

Poor management of annual, non-renewing contracts in the IT industry can also have significant repercussions on a company's credit score. When these contracts are not managed effectively, it can lead to a series of financial and operational issues that can ultimately harm the company's financial standing.  

Failure to renegotiate. One of the primary issues is the failure to renegotiate contracts in a timely and effective manner. If a company does not actively engage in the renegotiation process, it may miss out on opportunities to secure more favorable terms, such as lower prices or better service levels. It can also result in higher costs over time, which can strain the company's budget and financial resources. 

Unexpected penalties. Lack of proper contract management can also lead to unexpected penalties and fees. For instance, if a company fails to terminate a contract before the end of its term or misses key deadlines, it may be subject to early termination fees or other penalties.  

Contract renewals and auto-renewals can have significant implications for a company's financial health and credit score. Unexpected costs can add up quickly, creating financial burdens that may be difficult to manage, especially for smaller companies with tighter budgets. Additionally, if the company is unable to pay these fees on time, it can lead to late payments, which are reported to credit agencies and can negatively impact the company's credit score. Over time, a pattern of late payments or missed financial obligations can diminish the company’s creditworthiness, making it harder to secure loans, lines of credit, or favorable terms from other vendors and service providers. 

BetterTracker - For Better Credit Scores and Better Peace of Mind 

Contract renewals don’t have to be a headache, and they certainly shouldn’t have a negative impact on your company’s credit score. There is a better way.  

BetterTracker helps companies take control of their SaaS spend management, contracts, subscription renewals, and vendor agreements - all in one centralized platform. No more missed dates. No more ambiguous contract terms. No more surprise renewals. 

By using BetterTracker, you can: 

• Monitor renewal timelines proactively, with alerts sounding well in advance. 
• Uncover duplicate or unused SaaS subscriptions that are draining your budget. 
• Store all contracts and terms in one searchable place, so your team is always in the know. 
• Avoid legal pitfalls by ensuring every renewal is intentional and on your terms. 
• Maintain a strong credit score by making sure the contracts you want to keep are planned for, well-negotiated, budgeted, and paid on time.  

BetterTracker helps finance, IT, and operations teams take control of contracts, subscriptions, and technology spend. By centralizing renewals, eliminating tech sprawl, and providing real-time visibility, BetterTracker empowers businesses to simplify compliance, reduce costs, and make smarter decisions. 

¹Source: https://productiv.com/blog/SaaS-statistics-that-every-it-manager-should-see