By Kelly Flynn, ADVANTAGE
Vendor contracts are one of your credit union’s more critical yet overlooked financial decisions. With agreements spanning anywhere from five to seven years, a single contract can impact your institution’s financial health, operational efficiency, and ability to adapt to changing technology.
Yet, many credit unions find themselves locked into one-sided agreements with hidden fees, restrictive auto-renewals, and vague service commitments – costing them money, flexibility, and account holder satisfaction.
So, the question is: Are your vendor contracts truly working for you, or are you stuck in any agreements that limit your potential?
Common Contract Mistakes That Could Be Costing You
At ADVANTAGE, we’ve helped countless community FIs review and negotiate vendor contracts, and we’ve seen the same mistakes repeated time and again. Here are the most common pitfalls to watch for.
Hidden Fees That Drain Your Budget
Contracts often include ambiguous pricing structures that lead to unexpected costs down the road. These might include:
- Pass-through fees that weren’t disclosed upfront.
- Inflated processing charges for basic services.
- Penalties for early termination that make switching vendors nearly impossible.
📌 Pro Tip: If a contract includes vague language like “fees subject to change,” that’s a red flag. Clarify all costs before signing.
Auto-Renewal Traps
Many contracts automatically renew unless you provide notice months in advance – sometimes 12 months or more. If you miss the window, you could be locked into another multi-year agreement without the chance to renegotiate better terms.
💡 Real-World Example: A community FI we worked with realized late in the process that their core processing contract was set to auto-renew for another five years. By stepping in quickly, we helped them assess their options, negotiate adjustments, and build a strategy to avoid being locked into restrictive terms in the future.
📌 Pro Tip: Always know your contract renewal deadlines and start reviewing terms at least 18 months in advance to maintain flexibility.
Weak Service Level Agreements (SLAs)
Vague or non-existent SLAs can leave your credit union without recourse when a vendor fails to meet expectations. Does your contract guarantee:
- Response times for service issues?
- Compensation for downtime or failed upgrades?
- A clear roadmap for tech updates and integrations?
💡 Real-World Example: A client we advised had a home banking vendor that promised upgrades for years – but because there were no SLA guarantees, those improvements never materialized.
📌 Pro Tip: Ensure service expectations are contractually binding with penalties for non-compliance.
Paying for Services You Don’t Need
We often hear of situations where FIs in the past have signed agreements based on a vendor’s standard package without realizing they’re overpaying for features they won’t use.
💡 Real-World Example: One client we worked with was paying thousands annually for fraud detection tools they weren’t even using – simply because the service was bundled into their contract.
📌 Pro Tip: Negotiate custom pricing based on actual usage, not generic packages.
How to Negotiate Better Terms – Even with Existing Vendors
If any of these issues sound familiar, the good news is you have options. Here’s how to take control of your vendor agreements:
- Start the contract review process early – at least 24-36 months before renewal.
- Benchmark your pricing and service levels against industry standards.
- Engage an expert to negotiate better terms and uncover hidden savings.
- Don’t assume you have to switch vendors – many terms can be renegotiated even if you stay with the same provider.
📌 Case Study: We recently worked with a client locked into a core processing contract that wasn’t working for them. By renegotiating key terms – without switching vendors – we helped them tens of thousands of dollars annually, secure stronger service guarantees, and gain the flexibility they needed for future growth.
Get Expert Help Before Your Next Vendor Renewal
At ADVANTAGE, we specialize in helping credit unions evaluate, negotiate, and optimize vendor contracts to ensure they’re set up for success –not stuck in bad agreements. Do you have a contract up for renewal? Let ADVANTAGE take a look. Our expert negotiators are here to help you:
- Identify hidden risks and cost-saving opportunities
- Benchmark pricing against industry standards
- Strengthen contract terms for better service guarantees
Don’t wait until it’s too late – start reviewing your contracts now and secure the best terms for your credit union’s future.
Connect with ADVANTAGE experts to learn how they can help you maximize the value of your contracts.
