3 Ways to Set New Vendor Contract Terms in Uncertain Times

Leverage your credit union’s vendor contracts for operational excellence.

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In the wake of pandemic-related social distancing and stay-at-home mandates, credit unions are continuing to change the way they conduct business, primarily due to their members’ expectations about how said business is done.

As members settle into reorganizing their purchasing behaviors and lifestyles, their habits and anticipations around how they engage with companies have changed.

For credit unions, these expectations are being met through their digital channels (via service offerings) and branch operations (via operating models). This often results in changing the terms of critical vendor contracts.

Before setting (or re-setting) terms ahead of your next contract expiration, here are three ways to prepare your credit union’s operations for vendor negotiations post-pandemic.

1. Conduct a Business Health Check

Even before recalibrating contracts, conduct a “business health check.” This exercise provides visibility to:

The operational impacts of COVID-19 are expected to persist into 2022 and beyond. With the results of this exercise, credit unions can better see ahead as they plan and adapt their operating models/supplier mix for post-pandemic conditions.

2. Perform an Invoice Audit

For those in the know, existing vendor contracts often include clauses inconsistent with one another or they are inaccurately applied. Of course, during an economic upheaval, auditing invoices can feel like an exercise in frustration.

Doubtless, this exercise is not for the faint of heart. Some invoices, such as ones from technology providers, can have hundreds of line items over multiple pages, making it easier to overlook errors that can add up over time.

For instance, payables clerks often mark an amount as correct if it aligns with the previous month’s balance, but this could lead to a mistake overlooked for months or even years.

To correct and prevent these errors, an invoice audit in the credit union’s critical vendor invoices – conducted by someone who thoroughly understands the contract terms and fee structures – could uncover short-term revenue that could fuel other projects.

With millions potentially hanging in the balance, having someone knowledgeable and versed in contract analysis may be well worth the credit union’s time.

3. Gather Intel and Benchmarks

Since contracts usually require review once every few years, decision makers are often unaware of what is or could be on the table before renegotiating a vendor contract.

Executives should start preparing 18 to 24 months before the contract expires for the negotiation table with:

Even as more waves of change come, weigh the options, first, by issuing a request for information (RFI) to several competing vendors. This process can require a decent amount of attention and time, but it can also lay out all the options before beginning negotiations.

Knowing What You Don’t Know

As credit unions begin reorganizing their operating structures and reassessing member needs, credit union executives should review supplier invoices and contracts long before expiration. These contracts may contain restrictive clauses and, often, require realignment for socially distanced conditions. The scope of contracted services will require a second look, so having someone who knows what is on the table is critical when approaching a contract renewal date.

Understandably, if visibility and bandwidth are limited, institutions may also engage with a third party that is knowledgeable in the terms and benchmarks of vendor contracts. Such third-party experts can also help design win-win incentive structures that reward future growth – adding clarity to items like force majeure clauses that should carry added resonance in the next normal.

Patrick Goodwin

Patrick Goodwin is the President of Strategic Resource Management, Inc. (SRM), a consulting firm for financial institutions based in Memphis, Tenn.

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