By Kelly Flynn,
As credit unions continue to deal with economic challenges and uncertainty regarding how increased regulations will affect their revenue, many are struggling with how to improve their bottom line without taking dramatic cost-cutting measures. That’s because they do not realize it is possible to lower recurring expenses without reducing services or staff. By taking a comprehensive look at existing service contracts, you can find unexpected savings and improve the quality of the service you receive without changing vendors.
Re-negotiating can benefit both large and small institutions
An expert with pricing and vendor services knowledge can assist you through the process of determining what level of savings you should be able to expect from re-negotiating your service contracts, whether you have one vendor or dozens. What’s more, you may find that by simply changing the verbiage in a contract, you can ensure that a vendor is providing you with the services you need today, as well as what you anticipate needing down the road. So not only does your credit union get a better price when it’s time to renew an agreement, you may benefit from immediate, retroactive savings.
When done correctly, re-negotiating a contract can be a “win-win” for you and your vendors; you get better service at a better price and your vendors keep a satisfied customer. However, if there are issues related to poor service or slow response to requests for support, getting the vendor’s attention during negotiations can lead to solutions for unsatisfactory treatment that can mend conflicts in the relationship with your institution.
Depending on the type of service involved, most contract terms run between three and seven years. The best time to review contract renewals and extensions is 12 to 18 months prior to the expiration dates. It is during this timeframe that the most substantial savings can be negotiated. Regardless, having an action plan in place to take advantage of uncovering hidden savings is something you cannot afford to put off until a later date.
Do your technology contracts have you seeing red?
Increasing consumer demand for faster, more convenient services – along with new standards on credit and debit card technology – have created a more urgent need for credit unions to upgrade product offerings and reduce the risk of fraud on electronic transactions. Unfortunately, staying on top of the latest technology can involve substantial costs – especially if you are working under service contract terms that were established years ago.
If you’re planning to make changes to your existing service delivery offerings, it is also the perfect opportunity to make sure your current contracts for such services as core processing, internet banking, and debit/credit card branding provide the most favorable terms at the lowest possible costs to the credit union.
What you don’t know could cost you
Over the past few years, there has been a substantial decrease in technology costs. However, your service provider is under no obligation to pass along those savings to you … especially if you have never asked for a review of contract pricing and terms.
An expert in contract review can determine if there are savings and possible incentive opportunities available with your current vendor. This includes reviewing every line item of your service agreements and providing feedback on pricing, service, support, and conditions related to proposals, contracts and agreements. For contracts such as debit card processing – which can include between 50 and 60 line items – this can require a substantial time commitment from credit union staff and take them away from important strategic or member service issues.
With the results from such a comprehensive review, you’ll be able to make an informed decision to not only secure better pricing, but also to lock in more favorable terms that fit your budgetary needs. If you are not satisfied with the revised cost or terms presented by your current vendor, a professional negotiator can advise you on potential service providers that might be a better fit for your credit union.
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Focus time and resources to your best advantage
Are your credit union’s technology service agreements coming up for renewal in the next 12-24 months? If so, there’s no better time to find out how a professional contract review can identify potential savings, along with potentially more appropriate service offerings to address member preferences. Let’s face it, monitoring and managing service contracts can be confusing. Especially if no one on staff has the expertise to measure current costs against what options are available in the marketplace or the knowledge to successfully negotiate with vendors for better terms.
Make a point to review contracts following a merger or acquisition
In the event of a credit union merger, contract negotiations can result in improved efficiencies and streamlined service. The issues related to mergers are complex, and in some instances, far-reaching. Whenever two institutions combine, the service redundancy factor is not only overwhelming but costly. The acquiring credit union now has two core processors, two ATM and card processors, two credit reporting processors, and on and on. But early termination of vendor contracts can result in costly penalties.
Ultimately, senior management must decide which of the multiple platforms will be selected and absorb the costs associated with terminating a vendor. Oftentimes, however, credit union leaders are consumed by the tremendous amount of details associated with the merger and are unaware of the potential savings available by renegotiating existing contracts. In some cases, they simply ignore the issue because it is too cumbersome.
A better solution is for an acquiring institution to create a competitive environment to determine which vendor is willing to absorb any termination costs to retain the business. Establishing a competitive field will help the institution to either eliminate the penalties or negotiate to have the winning vendor pay for them.
Depending on the transaction volume and size of the acquiring credit union, the savings from reviewing vendor contracts could reach hundreds of thousands, if not millions of dollars. Clearly, this savings is critical to an acquiring institution, as is satisfaction with the level of service provided.
Satisfaction should be guaranteed
Whether you have existing contracts that haven’t been reviewed for years or you are unsatisfied with the service you are receiving from a current vendor, you should only enter into a contract cost reduction service that offers guaranteed satisfaction on a risk-free basis. By doing so, if the program recommendations do not result in lower costs, you are not charged a fee. The only way your credit union can lose is by neglecting to take advantage of this cost-saving opportunity.
To learn more about uncovering savings opportunities by renegotiating your service contracts contact Kelly Flynn at Kelly.Flynn@JMFA.com or call 800-809-2307.