There may be 50 ways to leave your lover, but when it comes to ending a relationship with a vendor there’s really just one path to follow: the documentation in your service level agreement (SLA).
Financial institutions find themselves ending vendor relationships for many reasons. Sometimes the relationship is great, but the product or service no longer meets the institution’s needs. Maybe another vendor is just better. Or maybe the vendor wasn’t meeting expectations.
Regardless of the reason, your SLA is your break-up guide. A good SLA is like a prenuptial agreement. It outlines the details of how both parties will handle the end of the relationship, covering all the major issues. Guidance states that termination is a critical element of every vendor contract. It should include specific and measurable performance standards as well as penalties up to termination for failing to meet them. It should define what “termination for default” means and outline exit costs. These include termination fees and costs for exporting data. A good SLA will have secured the vendor’s cooperation in transitioning to a new vendor and include limits for how long a vendor can retain your records, particularly sensitive data like customer information.
Without these contract provisions, a financial institution is at the mercy of the vendor. It can charge you whatever it wants to leave. If you’re ending the relationship because the vendor failed to meet expectations, make sure you have documentation to prove the breach of contract. If you can’t demonstrate the vendor’s performance failures, you’ll be on the hook for a termination fee. You’ll also likely pay this fee if you end the relationship for convenience.
It’s important to follow the exact procedures outlined in the contract, especially when it comes to written notification of termination. That can mean a letter, an email, or a specific number of days’ notice, depending on the SLA. This is no time to be casual. A standard termination letter can be a useful tool, saving employees from having to draft one from scratch each time a vendor relationship ends.
When ending a vendor relationship, especially if you’ve had a good working relationship, it’s best to call your contact and give him a heads up that a written notification will be coming. Your vendor will probably ask what, if anything, it can do to keep your business. The kindest thing you can do is be honest about why you’re leaving, especially if it’s a performance or service issue. While the conversation probably won’t change your mind about leaving, you’ll make the vendor aware of any problems and give it an opportunity to improve before other clients leave. Wouldn’t you want your customers to do the same for you if they were unhappy?
While some people feel anxious or unsure about having to personally break unpleasant news over the phone, it can actually be less awkward than just sending a letter. With both financial institutions and vendors consolidating, it’s more and more likely that you’ll run into the same people again—either if you change institutions or if your vendor contact moves to a new company. You don’t want to sour that relationship by ghosting somebody.
Read also: Brokered Deposits & Vendor Management
Your vendor isn’t the only one who needs to be notified of the relationship’s end. Make sure everyone at your institution who interacted with the vendor is aware the relationship is terminated. You don’t want accounts payable to continue paying a vendor you terminated six months ago.
Contract records should be updated to reflect exactly how the contract was terminated and include the actual notification document, whether it was a letter or email. Make sure your new vendor contract is in the system and meets your regulator’s specific contract management guidance.
While breaking up is always a hassle, the more organized and prepared you are, the easier it is.
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