There’s a common assumption in business: contracts are a legal matter, so you hand them to your attorney and move on. Your lawyer reviews the language, protects you from liability, and signs off. Done.
But if your CFO isn’t also reviewing your contracts, you may be walking into financial commitments that are perfectly legal but potentially damaging to your business.
There’s a certain misperception about what a CFO actually does. Most people think of the role as number crunching; closing the books, reviewing reports, tracking expenses. And yes, that’s part of it. But a strong CFO is also instrumental in setting strategy, building a culture of data-driven decision making, managing cash flow, and containing risk.
That last part – cash flow and risk – is exactly why your CFO should have eyes on your contracts.
What Your Lawyer Is Looking At
Your attorney is focused on legal protection. When they review a contract, they’re asking questions like:
- Is our company protected from legal liability, including indemnification exposure?
- Are the terms enforceable under applicable law?
- Are there clauses that could expose us to litigation or dispute?
- Is intellectual property ownership clearly defined?
These are critical questions. But they’re not the only ones. A contract can be airtight from a legal standpoint and still create serious financial problems for your business.
What Your CFO Sees
Your CFO is reading the same document through a completely different lens. They’re thinking about cash flow, risk exposure, and what commitments will actually look like when they hit your financials.
Payment terms and working capital risk
- Are your payment terms aligned with company standards? Net-60 or Net-90 terms might seem like a minor concession to win a deal, but across multiple contracts, they can create a significant gap between when you deliver and when you actually get paid.
Vague financial language
- Contracts that include rebates, discounts, or performance-based adjustments need precise language around how those amounts are calculated and applied. Ambiguity here isn’t just a legal risk – it creates accounting headaches and financial exposure.
Contract length and exit terms
- What does it cost you to exit early? A vendor contract that locks you in for five years may seem fine today. But if your business pivots, your technology needs change, or a better solution comes along, you want to know the financial cost of that flexibility before you sign, not after.
What This Looks Like in Practice
Here are two hypothetical examples that illustrate where CFO involvement in contract review adds real value:
Example 1: A Services Company and Accounts Receivable Terms
Imagine a professional services firm that lands a significant new client. The contract includes Net-60 payment terms, which the sales team agreed to in order to close the deal. Legally, there’s nothing wrong with it.
But a CFO reviewing this contract would notice something the lawyer wouldn’t: the contract has no language around timesheet or deliverable approval timelines. In practice, this means the client can delay approving the work – which in turn delays the invoice. This means the actual payment could stretch to 75 or even 90 days, not the 60 days on paper.
A CFO would push to add a clause specifying that timesheets or deliverables must be approved within a defined window (say, five business days) of submission, or they’re deemed approved. A small addition, but one that protects cash flow in a meaningful way.
Example 2: A Vendor Agreement and Spending Controls
Now consider a growing company signing a multi-year agreement with a technology vendor. The contract allows the vendor to provide additional services on a time-and-materials basis beyond the base scope. Again, legally clean.
A CFO would flag that without internal purchase order (PO) approval thresholds tied to this contract, add-on spending could accumulate without adequate oversight. They might recommend implementing an internal control requiring PO approval for any spend above a defined dollar threshold under this agreement – ensuring that incremental costs are visible, authorized, and tracked before they hit the books.
It’s not about distrust. It’s about building the structure that keeps spending intentional and visible as your business scales.
The Key Takeaway
Your lawyer and your CFO are both reading your contracts – they’re just reading for different things. Legal protection matters. But so does understanding what a contract actually means for your cash flow, your spending discipline, and your financial flexibility down the road.
If your business is growing and contracts are becoming more complex – longer terms, more vendors, more clients – having a CFO-level perspective in the room before you sign is one of the simplest ways to avoid financial surprises.
Not sure if your current contracts are creating hidden financial risk? That’s exactly the kind of conversation we have with clients. Book a free consultation to learn more.