What Are My Obligations Around Contract Termination?
There are all kinds of reasons you might not stick with your phone or internet service. Maybe it’s because you’ve found a better deal somewhere else. Maybe it’s because you’re closing down a sector of your business. The only problem? You might not have the opportunity to terminate your contract whenever you want.
Phone and internet services typically come with commitments — when you sign up, you agree to use the service for a specific period of time. This is to cover the cost of adding your account and ensuring the service provider can continue providing consistent pricing. When that time is approaching (usually 30, 60, or 90 days out), you only have so much time to terminate the service before it renews, locking you into another period of service.
As a business owner, you need to understand the fine print in your service agreements like when you can (or can’t) terminate. If you miss your termination window, you could end up taking on a costly renewal fee for a service you’re not planning to use.
To help you understand your obligations around termination, here’s what we suggest you keep in mind:
Understanding Service Agreements
Think of a service agreement like a lease on an apartment: When you sign on, you’re agreeing to use it for a set period of time. While a lease might have a fixed-term commitment of a year, service commitments are usually a little bit longer, around two to three years. The idea behind this is to avoid having to put you through the cost of committing to a new service on a regular basis. Think about how much more expensive service would be if people were going from one agreement to another every month.
Most service agreements come with a renewal clause, meaning that at the end of your service term, your agreement automatically renews itself unless you specifically choose to drop it. You usually have a narrow window of time when you have the option of canceling before the automatic renewal happens. In most cases, this window is 60 days, meaning you have about two months to cancel before you’re locked into your service again for another two- or three-year term.
Common Pitfalls and Consequences
There are a few common pitfalls many business owners run into when it comes to these service periods. Obviously, the most prominent one — and the one with the most consequences — is overlooking the renewal deadline. This is easy to do, especially because a service term usually lasts for so long. When you sign your contract, you’re not maintaining a calendar for two or three years in the future when the term ends. When you reach that point two or three years in the future, you’re not thinking about contracts you signed years ago. It’s easy enough to forget about it, especially if you’re not receiving a reminder that the contract is renewing. This is why it’s so easy to miss the cancellation window and find yourself locked into another term.
These oversights come with financial implications if you were not planning on renewing or if you were planning to switch over to a different provider. When you’re locked into a contract for another two or three years, you’ll likely face either paying a hefty cancellation fee (not ideal) or continuing to pay for unwanted services that you’re ultimately not going to use (possibly even worse). This is especially frustrating for businesses that are planning to switch to a service that’s a better fit for their needs because they could be stuck with a service that’s a less than ideal fit.
Best Practices for a Managing Service Contract
The best way of avoiding these pitfalls and ultimately avoiding problems like cancellation fees or payment for a service you’re not going to use is to keep close track of key dates. When you sign your contract, pay attention to the agreement’s end date. Even though it seems far away, it doesn’t hurt to put the date in your calendar and turn on a reminder so you’ll get a notification. You can even designate somebody within your company as a specific person to manage these contracts — they are in charge of renewing or canceling the contract during that period. (It’s worth remembering, however, that even if you delegate this responsibility to a member of your team, you should still pay close attention to the date yourself.)
Two or three years later, when your term is up and you are within the window of renewing or canceling, take a chance to review your service to determine whether it’s still a good fit. You might decide it’s entirely appropriate to renew, but there’s also a chance there’s a better offer out there you want to take advantage of. Whatever you decide to do should be, ideally, a conscious and strategic choice. If you do find yourself locked into an unwanted renewal, talk to your provider about possibly getting better terms or finding a way to transfer your service.