In the article "Understanding Revenue Contractual Terms,” we discussed the contractual term in revenue accounting and how implementers can use this knowledge in configuration considerations related to the ZB revenue module. In this article, we expand that understanding to include a related concept - termination for convenience clauses.
A termination for convenience clause is language in an order, agreement, or other that grants a party the right to terminate the contract at defined points for any reason regardless of the renewal model. This is differentiated from termination for cause clauses, which are included in most contracts and allow cancellation for specific agreed upon reasons, such as a breach of service level agreement. Frequently referred to as simply “term for convenience” clauses, these are generally seen in enterprise-level, multi-year agreements, which tend to be structured under the Standard Renewal or Single-Term model. The truncating effect of a termination for convenience clause on the contract term may be mitigated by the existence of a termination penalty - a fee unrelated to services that would be due to the vendor upon termination under this clause.
Termination for convenience clauses and the effect of a penalty can be complex and require an in-depth client conversation in order to configure billing and revenue to meet client business needs. If an implementer encounters a termination for convenience clause in client discovery conversations, it is recommended to reach out to the Zone Revenue Center of Excellence for assistance.