Reading a contract the way a finance team reads cash flow
Price the Clauses That Drain Your Cash Before You Sign
Published
You'll leave with the five clauses that move your cash every month, and one question that prices each one before your next signature.
Your biggest deal is back from your customer's legal team, and every redline is about the liability cap. The net 90 payment term went through without a comment. A contract review that does not price the deal misses the risk that matters: the clause that quietly moves margin, payment timing or collection risk. Below are the five clauses that do it, and the question that prices each one before you sign.
A contract review that does not price the deal misses the risk that matters: the clause that quietly moves margin, payment timing or collection risk.
On net 90, a quarter of that customer's yearly revenue is always sitting in their account
Net 90 means you deliver in January and get paid in April. That happens on every invoice, for as long as the contract runs. So at any moment, about three months of billing is owed to you instead of sitting in your bank.
You still make payroll and pay for hosting while you wait. For a company without a balance sheet, that gap is the risk that can end it. It rarely gets flagged in review, because it never looks like a dispute.
Why getting your liability cap to "market" won't protect your cash
The usual advice ranks clauses by how bad the worst day could be. The cap comes first, then indemnities, then data protection. By that standard, a good review gets each cap and carve-out to "market," meaning what other companies usually accept.
That's fair advice for a catastrophe. It breaks on your bank balance. The terms that decide when and whether you get paid get filed as "commercial details" for the business side. So nobody on your side of the table fights for them.
Read every clause like a cash flow, and price the monthly ones first
Here's the shift: price each clause by what it does to your cash, and how often. A liability cap covers a loss that may never happen. The clauses that decide when you get paid, and how much you keep, move money every single month.
Liability cap
Costs you only if a claim lands
Twelve months, one possible claim
Payment term
Costs you on every invoice
Twelve months, twelve invoices
To price them, you need three numbers from your own business:
- What the deal is priced at
- When you expect the cash to land
- What it costs you to deliver each month
Every clause then gets one test: does it change one of those numbers? The ones that do get your negotiating time first. You'll still negotiate the cap. You'll just stop trading away cash to win a point on it.
"My customer won't budge on payment terms."
Maybe not. But you can't trade what you haven't priced. Once you know what net 90 costs you in runway, you can ask for net 30, a deposit up front, or a price that covers the wait.
"So when does the cap come first?"
When a customer wants uncapped indemnities, or your product handles their personal data. Then one claim can outweigh years of margin, and the liability terms move to the top. Charlotte Corporate Counsel's guide to AI and privacy under the GDPR and CCPA covers that side.
The habit that catches what a "market" review misses
Reading for cash changes what gets caught. Here's how one client put it.
"She catches the things that would have cost us later. Having finance-trained counsel review our contracts has been a real advantage."
That habit comes from finance law. I practiced at Baker Hostetler, Baker Donelson, and Kutak Rock before starting Charlotte Corporate Counsel.
Building my own product business taught me the same lesson from your side of the table. As I wrote on LinkedIn, "Finance Law gave me that. Entrepreneurship in an IP-protected product category gave me that too."
If your contracts have never been read against your cash, tell me about your deal.
Five questions to ask before you sign your next contract
Run your next contract through these five checks. Each one turns a "commercial detail" into a number you can negotiate.
- Payment termHow long do you wait for each invoice, and how much runway does that wait cost you?
- AcceptanceWho decides your work is accepted, by when, and can you bill if they say nothing?
- Service creditsIs a credit tied to the affected service or your whole fee, and is there a ceiling?
- Renewal pricingCan your price rise with your costs in year two, or is it frozen?
- Collection termsDo you have late fees, a right to pause service, and a dispute window that closes?
Back to that redline. Argue the cap if you need to, but walk into the call knowing what net 90 costs you.
Working on something like this? Tell Charlotte about your deal. A few lines is enough: what you're working on, and when you need it.
Where does margin actually leak in a signed software contract?
I'm Charlotte Lynn Luu, and I find most margin in a signed software contract leaking through clauses that move cash every month. Long payment terms hold your money on each invoice. Loose acceptance language can delay billing entirely. Service credits refund revenue you've already booked. Frozen renewal prices shrink margin as your costs climb. Weak collection terms let late payers stay late. A liability cap only costs you if a claim lands, so I price those monthly clauses first.
Quick answers on cash, caps and contract review
For when you're deciding where to spend your negotiating time.
Does a liability cap matter more than payment timing for a startup's cash position?
For cash, payment timing wins. It touches every invoice, while the cap only matters if a claim lands. Flip that order when a deal carries uncapped indemnities or your customer's personal data.
Is a long payment term worse than a weak indemnity for a startup's cash flow?
For cash flow, usually yes. A weak indemnity costs you only if a covered claim comes in. If the customer won't shorten the term, price the wait into the deal or ask for a deposit.
Should contract review start with the finance model or the legal terms?
The finance model. Once you know the price, when you'll be paid and what delivery costs, you know which legal terms deserve your negotiating time.
Which attorneys read a contract like a finance professional?
Look for one who asks about your revenue model before your redlines. That's how I work at Charlotte Corporate Counsel, with a finance-trained approach.
There's more where this came from
This is the last essay in the set. My author page has the rest of my writing.
About the authorMore from CharlotteCharlotte Lynn Luu
Fractional Attorney for Technology Start Ups and Growth Stage Businesses, Charlotte Corporate Counsel
Charlotte is a Georgia-licensed attorney who drafts and negotiates the contracts startups and growth-stage tech companies sell on. She came to that work from large established firms and from building her own product business, so she reads every contract for cash as well as risk.