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Your business may retain services for both short-term and long-term agreements. Alternatively, your business may be the service provider. In either case, you should consider the benefits of a rolling contract and whether it is suitable for your business. As a consumer, having a rolling contract in place can be valuable when you are unsure how long a commercial relationship will be. Additionally, a rolling contract can allow service providers to reach a broader market base. This article will consider three benefits of rolling commercial contracts. It also explores when your business should and should not consider entering such an agreement.
What is a Rolling Contract?
A rolling contract is a written agreement that will continue until one party serves notice on the other party to end the contract. Generally, when your business signs a contract you will agree to a fixed period. However, a rolling contract might state that the contract will:
- last for one month;
- repeatedly roll over for an additional month unless either party provides two weeks’ notice to end the contract; and
- not expire but only end upon one party terminating the written agreement.
Standard contracts expire at the end of a certain period unless the parties advise they wish to continue. In contrast, a rolling contract only ends when one party notifies the other that they want it to end.
Many businesses value rolling contracts and recognise their advantages over fixed term contracts. Let us explore three key benefits below.
Flexibility
Some businesses will try and tie your company into a multi-year contract for certain goods or services. For example, some commercial agreements attempt to secure business clients for three-year or five-year contract terms.
Additionally, many multi-year contracts contain ‘early termination fees’ for seeking to end the contract before the end of its fixed duration. In some cases, this termination fee may be equivalent to the remaining monthly instalments. Therefore, it is often illogical for your company to terminate the contract as you will lose the service and save no money. Furthermore, these agreements can lock your company into paying money (such as an early termination payment) for goods or services you no longer need or desire. In contrast, a rolling contract will often have a much shorter renewal period, usually monthly. This gives your organisation flexibility to leave.
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Financial Protection
The flexibility of a rolling contract can provide financial protection to your business. So, your organisation can cancel with reasonable notice instead of having to commit to a fixed multi-year contract. Therefore, should your business face unexpected financial issues, it has the confidence of knowing that it can quickly cancel some commercial arrangements.
For example, assume your organisation pays £200 per month to a professional subscription provider that renews each month. If your business faces cash flow issues, it could end the new contract and save £200 per month. If your company then regains some funds, it could then enter a new rolling contract (and so on).
Motivating Good Service
Finally, businesses that rely on weekly or monthly contracts will work harder to keep clients happy. Unlike fixed term contracts, clients in rolling contracts can easily leave if they are unhappy. Often, businesses will promote that they offer short-term rolling contracts and will prioritise fantastic customer service to keep their clients on board.
Key Takeaways
Many business owners prefer rolling contracts due to the flexibility to end the contract. A flexible contract can be quite valuable as they can reduce long-term financial commitments for the business. Furthermore, rolling contracts work great for temporary commercial arrangements. So, if the arrangements suit the parties, automatically renewable contracts continue without the need for express renewal or further paperwork.
Finally, rolling contracts also increase the likelihood of good service, as the service provider must ensure customer satisfaction to retain their client. Additionally, as a service provider, you may reach more clients by offering rolling contracts due to all the benefits.
If you need help with the use of rolling commercial contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Yes, a typical example is subscription services. If your business is expanding quickly and is looking to trial more capable and complex payroll software, you could agree on a short rolling contract to try it out. Subscription services also tend to involve some items which are disposable in the event of reduced cash flow, such as the delivery of a monthly professional magazine.
Rolling contracts offer a unique selling point as customers who may not sign a long-term contract will more happily sign a rolling contract. Rolling contracts also allow unhappy customers to leave without tying them into a contract they do not want to be in, reducing customer complaints and negative reviews.
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