According to the World Commerce & Contracting Association, businesses lose nearly 9% of annual revenue due to poor contract management and missed clauses. That’s millions lost simply because critical terms weren’t reviewed thoroughly before signing.

‍

Contract review isn’t just a legal formality, it’s a safeguard for your company’s finances, compliance, and credibility. In this blog, we’ll break down what contract review means, why it matters, and how to make your review process faster, smarter, and risk-free.

‍

What is Contract Review?

Contract review is the process of carefully analyzing an agreement before signing to confirm that every term, condition, and responsibility is fair, compliant, and protects your business from risk or unclear obligations. It helps prevent disputes and ensure mutual clarity.

‍

Why Contract Review is Critical for Business Success

Let’s be honest - most contracts can feel overwhelming. But skipping a proper review can cost you big time. From unclear obligations, hidden fees, or unfavourable terms, even small oversights can lead to costly setbacks and disputes down the road.  Managing contracts effectively is no small task, especially with the complexities businesses face today.

‍

Read our Contract Management Strategies in 2025 to to build a foundation for better contract management. 

‍

Reviewing contracts is not only about spotting mistakes. It is also about protecting your business and making sure every agreement works in your favour. 

‍

Here are reasons why contract review matters:

‍

• Helps you spot potential risks before they become problems: Unfavorable      clauses around liability, indemnity, or data security can leave you exposed. A careful      review helps you flag and fix these issues early.
• Gets everyone on the same page: Contracts lay out who’s responsible for what. A      good review ensures there’s no confusion about obligations, deadlines, or deliverables.
• Makes you stay compliant: Whether it is industry regulations or legal requirements,      review ensures that your business is not accidentally breaking any rules.
• Enables you to avoid hidden costs: Nobody likes surprises, especially costly ones.      Reviewing payment terms and penalty clauses helps you avoid financial stress later. In      short, taking the time to review business contracts might feel tedious, but it’s a small effort      that can save you from significant financial, legal, or operational setbacks in the future. 

Top Red Flags in Contracts to Watch For

When conducting a contract risk assessment, it’s important to look for high-risk contract clauses that could expose your business to financial or operational danger. These contract red flags often appear in standard agreements and can go unnoticed without a careful review.

‍

Below are some of the most dangerous contract terms you should pay attention to during procurement or vendor negotiations.

Common High-Risk Contract Clauses

The Contract Review Process 

Your contract process requires more than efforts to scan for errors. Leveraging tools like contract analysis software can help you understand the intent of the agreement, identifying risks, and ensuring the terms align with your business goals. 

‍

Here is a practical, high-level strategy to guide you through the process:

‍

1. Understand the Scope of the Contract

Before diving into the details, take a step back and consider the big picture. 

‍

What is the purpose of the contract? What are expected contract outcomes for all parties involved? 

‍

Understanding the scope gives you context for reviewing specific terms and ensures that nothing is overlooked. 

‍

For example: A contract for software services should clearly outline both the deliverables (features and uptime guarantees) and the responsibilities of the vendor (customer support and updates).

‍

2. Break the Contract into Key Sections

Divide the contract into its main components - such as deliverables, payment terms, key provisions, and dispute resolution - and review them one at a time. Standardized contract templates can help you streamline this process, enabling you to develop a robust contract lifecycle management system. A section-by-section approach helps you streamline your contract workflow and focus on specific areas without feeling overwhelmed by the full document. 

‍

Tip: Start with the high-impact sections like payment terms and liability clauses before moving on to general conditions. 

‍

3. Look for Business Alignment

Review the contract terms alongside your organization’s policies, goals, and processes to ensure alignment.  

‍

Does the agreement support your operational needs? Are deadlines achievable for your team? 

‍

Contracts that conflict with your business practices can create operational or financial challenges. 

‍

Example: If a vendor requires payment within 15 days, but your internal process takes 30 days, this mismatch could lead to friction.

4. Collaborate with Internal Stakeholders

A good contract review is a team effort. Involve relevant departments like finance, operations, IT, and contract managers to ensure the terms align with their requirements. Each functional expert in your organization can provide insights that contribute to a successful contract management process. 

‍

Tip: For SaaS contracts, loop in your IT or procurement teams to evaluate clauses related to service uptime or compliance with data security policies.

5. Evaluate the Risks

Effective risk management involves identifying clauses that could expose your business to unnecessary risks such as indemnity, liability limitations, or unclear termination conditions. 

The more risks you can mitigate before you finalize the agreement, the better for your business. 

‍

Example: Watch out for clauses like “unlimited liability” or one-sided indemnity terms that place the entire burden on your business.

‍

6. Consult with Legal Experts

While you can handle much of the review internally, it’s always a good idea to have a legal expert review critical or high-value contracts. Legal experts can  identify subtle risks or inconsistencies that might not be obvious to non-legal professionals.

‍

Tip: Involving legal teams early in the process can save time and prevent costly revisions down the road. 

‍

By following this approach, you’ll be able to conduct a systematic and strategic contract review that safeguards your business interests while setting the foundation for successful partnerships.
‍

Top 9 Contract Review Mistakes to Avoid in 2025

Even experienced procurement and finance professionals can overlook critical details during contract review and small mistakes often lead to major financial or legal consequences later.

‍

Below are the top contract review challenges and their solutions to help you spot and prevent these costly errors.

‍

1. Overlooking Ambiguous Language

Challenge: Vague phrases like “reasonable efforts” or “as soon as possible” seem harmless, but they create room for interpretation and disputes. Ambiguity often benefits the party that drafted the contract.

‍

Solution: Use clear, specific language. Replace vague terms with measurable standards for example, change “reasonable efforts” to “deliverables within 15 business days.” Always ask for clarification when wording is unclear.

‍

2. Failing to Assess Liability and Indemnity Clauses

Challenge: Liability and indemnity clauses define who is responsible for damages or third-party claims. Without proper limits, your business could face heavy financial exposure.

‍

Solution: Negotiate capped liability clauses and ensure indemnity terms are fair and mutual. Never accept unlimited liability unless absolutely necessary.

‍

3. Ignoring Termination and Renewal Terms

Challenge: Many contracts automatically renew without notice, locking you into unfavorable terms. Missing termination details can also lead to penalties or business disruption.

‍

Solution: Review cancellation and renewal clauses carefully. Set internal reminders for renewal dates, and request written confirmation before a contract renews.

‍

4. Skipping the Fine Print

Challenge: Critical information like hidden fees or restrictive terms often hides in the fine print. Skimming or skipping it can lead to costly surprises.

‍

Solution: Read every clause, even if it’s tedious. The fine print often contains crucial financial or operational terms that can impact your business significantly.

‍

5. Not Reviewing Deliverables Thoroughly

Challenge: Contracts with vague deliverables can cause misaligned expectations and payment disputes.

‍

Solution: Ensure all deliverables are specific, measurable, and tied to clear timelines or milestones. Connect payments to progress wherever possible.

‍

6. Failing to Involve Key Stakeholders

Challenge: Contracts often affect multiple departments like finance, operations, IT, and legal. Failing to involve them can result in oversights or policy conflicts.

‍

Solution: Bring all relevant stakeholders into the review process. Their input ensures the contract aligns with your organization’s operational, legal, and financial goals.

‍

7. Ignoring Compliance Requirements

Challenge: Many agreements must meet regulatory standards like GDPR, CCPA, or labor laws. Overlooking compliance clauses can lead to fines or reputational damage.

‍

Solution: Review all compliance obligations during your contract risk assessment. Include legal or compliance teams early to ensure adherence to regulations.

‍

8. Skipping a Legal Review

Challenge: Relying solely on internal reviews can leave hidden risks unnoticed. Legal nuances or unenforceable clauses may slip by non-lawyers.

‍

Solution: Have a qualified legal professional review every high-value or high-risk contract. Their review ensures enforceability and reduces the risk of future disputes.

‍

9. Forgetting to Account for Future Changes

Challenge: Contracts that ignore potential future changes like inflation, technology shifts, or business restructuring can limit flexibility and hurt profitability later.

‍

Solution: Include renegotiation clauses or scheduled reviews to accommodate evolving needs. Flexibility protects your business from being stuck with outdated terms.

‍

Free Contract Review Checklist Template (2025)

Contract review checklist 2025, ultimate contract review checklist, contract review template, contract review steps.

After setting up a structured review process, tools like contract lifecycle management software and this ultimate contract review checklist can help ensure no critical detail slips through.

‍

This contract review template simplifies the review process and highlights the essential every business should follow before signing any agreement.

‍

1. Verify the Parties Involved

Double-check that the names, designations, and contact details of all parties are accurate. Incomplete or vague information can make a contract unenforceable or lead to disputes later.

‍

Note: Replace placeholder terms like “Vendor X” or generic references such as “First Party” and “Second Party” with actual legal names and entity details.

‍

2. Review Payment Terms

Ensure the payment structure is clearly defined including amounts, schedules, late fees, and refund policies. Hidden fees or unclear payment conditions can cause financial strain.

‍

Note: “Net 30” means payment is due 30 days after the invoice date. Make sure it aligns with your internal accounting cycle.

‍

3. Assess Liability and Risk Clauses

Carefully examine liability, indemnity, and warranty sections. These determine how risks are shared between parties.

‍

Tip: Avoid contracts that lack a liability cap. Unlimited liability can expose your organization to unnecessary financial risk.

‍

4. Clarify Termination and Renewal Terms

Check how the contract can be ended or renewed. Termination clauses should allow fair notice and mutual flexibility.

‍

Note: Watch for auto-renewal clauses that renew by default. Track renewal dates and require written confirmation to avoid being locked in unintentionally.

‍

5. Confirm Jurisdiction and Governing Law

Every contract should specify which state’s laws apply and where disputes will be resolved. This governing law clause defines the legal framework for enforcement, while the jurisdiction in contract determines the physical or legal location where disputes are handled.

‍

Example: Choose a choice of law clause that aligns with your company’s primary operating region to minimize legal complexity. Not defining contract dispute jurisdiction can lead to higher legal costs and confusion later.

‍

6. Ensure Compliance with Laws and Regulations

Confirm that the contract complies with applicable laws, especially data privacy (GDPR, CCPA) and labor regulations. Non-compliance could lead to fines or legal action.

‍

Example: If customer data is involved, ensure the agreement clearly states compliance with data protection standards.

‍

7. Understand Breach and Default Consequences

A well-drafted contract defines what happens when either party fails to fulfill obligations. The breach of contract clause should clearly outline penalties, remedies, and termination rights.

‍

Tip: Define default in contract precisely to avoid ambiguity. Document the contract breach consequences and outline remedies for breach of contract to protect your company’s interests.

‍

8. Ensure No Blank Spaces or Formatting Errors

Never sign a contract containing placeholders or missing details. Leaving blank spaces in contracts such as “Effective Date: ___” or “Vendor X” can cause confusion and legal vulnerabilities.

‍

Tip: Use a contract formatting checklist to review all sections, remove placeholder terms, and eliminate contract drafting errors before signing.

‍

9. Verify ESG and Data Privacy Compliance

Modern contracts should reflect your organization’s ethical and sustainability commitments. Include clear clauses on ESG in contracts, data privacy clauses, and GDPR compliance in contracts.

‍

Example: Add CCPA contract requirements and sustainability contract terms to ensure vendors align with your compliance and environmental goals.

‍

10. Double-Check Deliverables and Deadlines

Outline deliverables, milestones, and timelines clearly. Each deliverable should be measurable, achievable, and tied to payments or performance metrics.

‍

Fact: Add provisions for delays to protect against disputes caused by unforeseen circumstances.

‍

11. Confirm Confidentiality Clauses

Review NDAs and confidentiality terms to ensure sensitive business information remains protected even after the contract ends.

‍

Tip: The confidentiality obligation should extend beyond the contract’s termination to safeguard long-term interests.

‍

12. Look for Dispute Resolution Clauses

Identify how disputes will be resolved through mediation, arbitration, or court proceedings. The process should be fair and clearly defined.

‍

Did You Know? Arbitration is often faster and private but may limit appeal options, so evaluate what works best for your organization.

‍

13. Consult Legal Experts

After completing your internal review, have a legal professional review the contract. They can identify red flags, assess high-risk clauses, and recommend safer terms.

‍

Tip: Always involve legal counsel for high-value contracts or agreements across multiple jurisdictions.

‍

Who Should Conduct a Contract Review?

A thorough contract review isn’t just a legal formality, it’s a cross-functional process. Each team plays a specific role in identifying risks, validating terms, and ensuring that the agreement aligns with business goals.

‍

Understanding who reviews contracts and their specific contract review responsibilities helps ensure no critical element is missed.

‍

Below is a simple breakdown of role-based contract review responsibilities within your organization:

‍

Sales or Procurement: Initial Review for Scope and Pricing

Sales or procurement teams are the first line of defense. They assess the scope, deliverables, and pricing terms to ensure the contract aligns with what was agreed during negotiations.

Responsibilities:

‍

• Confirm that pricing, discounts, and SLAs match the proposal.
• Check that deliverables and timelines are clearly defined.
• Flag unclear or missing commercial terms before passing the contract forward.

‍

Why it matters:
Early checks prevent downstream disputes and ensure commercial clarity before legal or finance teams get involved.

‍

Finance: Review Payment Terms and Budget Alignment

Finance ensures that the agreement supports the company’s financial health. Their focus is on payment terms, budget approval, and long-term cost impact.

Responsibilities:

‍

• Verify payment schedules, refund terms, and penalties.
• Assess whether costs align with the approved budget or forecast.
• Identify potential risks tied to late payments or automatic renewals.

‍

Why it matters:
The finance team’s review guarantees predictable cash flow and avoids surprise expenses down the line.

‍

Legal: Assess Risk, Compliance, and Liability

The legal team takes the lead in identifying contract risk and ensuring compliance with laws and internal policies. They evaluate all clauses that may expose the organization to liability.

‍

Responsibilities:

‍

• Review indemnity, limitation of liability, and dispute resolution clauses.
• Ensure the contract meets compliance standards (e.g., GDPR, CCPA).
• Recommend changes to ambiguous or risky language.

‍

Why it matters:
Legal reviews ensure contracts are enforceable, compliant, and protect the company’s interests.

‍

IT / Security: Evaluate Data Privacy and Cybersecurity Clauses

For contracts involving SaaS or technology vendors, IT and security teams assess data handling, privacy, and cybersecurity requirements.

‍

Responsibilities:

‍

• Review data storage, encryption, and access controls.
• Ensure the contract includes data breach notification timelines.
• Verify compliance with internal and external security frameworks.

‍

Why it matters:
A detailed IT/security review minimizes risks around data privacy and ensures vendors meet your company’s cybersecurity standards.

‍

How AI is Transforming Contract Review in 2025

Manual contract reviews can be slow, repetitive, and prone to oversight, especially when handling multiple agreements across vendors and departments. That’s where AI contract review tools are reshaping the process.

‍

Modern contract review software (2025) is designed to analyze complex legal documents in minutes, extract key clauses automatically, and highlight high-risk language that requires attention.

‍

How AI Improves Speed and Accuracy

AI-driven tools use natural language processing (NLP) and machine learning to scan hundreds of pages instantly. These systems extract clauses, flag potential risks, and suggest revisions, helping teams focus on decision-making instead of manual searching.

‍

With automated contract review, organizations can:

‍

• Reduce review time by up to 80%, even for large vendor agreements.
• Identify missing or one-sided clauses such as unlimited liability or automatic renewals before they become issues.
• Standardize legal language to ensure consistency across all contracts.

‍

Example: A finance or procurement manager can upload multiple contracts into an AI-powered legal review platform, which then categorizes clauses like payment terms, indemnity, or termination conditions within seconds.

‍

Leading Platforms in AI for Contract Analysis

Several emerging platforms are redefining AI for contract analysis through intelligent automation and user-friendly design:

‍

• Superlegal: Offers AI-assisted clause detection, risk scoring, and quick redlining suggestions that streamline reviews.
• SpotDraft: Automates contract drafting and version control while highlighting compliance risks during negotiations.
• PandaDoc: Simplifies contract lifecycle management with AI-generated summaries and real-time collaboration tools.

‍

These tools integrate easily with procurement workflows, helping teams cut hours from their review cycles while maintaining compliance and accuracy.

‍

‍

How Spendflo Can Simplify Contract Management

Managing contracts manually can slow down growth and expose your business to unnecessary risks. Missed renewal dates, one-sided terms, and inconsistent reviews often lead to higher costs and compliance issues, problems many teams face when relying on spreadsheets or email trails.

‍

A mid-market tech company recently turned to Spendflo after struggling to track over 100 vendor contracts across finance, legal, and procurement. Within 60 days, they consolidated every agreement in one place, automated renewal tracking, and cut contract review time by 75%, all while improving compliance visibility across departments.

‍

Yet, for many growing organizations, the challenges remain the same: lengthy negotiations, delayed approvals, and limited visibility into vendor obligations. That’s where Spendflo makes a measurable difference.

‍

Powered by Flo AI, Spendflo’s SmartScan automatically reviews and flags risky clauses, centralizes vendor data, and provides real-time insights into renewals and compliance. It’s the all-in-one solution for teams looking to modernize their contract management and reduce operational friction.

‍

Ready to take control of your contracts?

‍
Book a Spendflo demo today and see how our AI-powered contract management solutions can help you cut costs, reduce risk, and ensure every contract works in your favor.
‍

‍

Frequently Asked Questions on Contract Analysis

What is the purpose of contract review?
‍

The purpose of contract review is to ensure terms, conditions, and obligations in an agreement align with business interests, mitigate risks, and protect you from potential legal or financial issues. It helps clarify expectations, identify red flags, and ensure compliance with laws. 

‍

How can I simplify contract reviews?

You can simplify contract reviews by following a structured process. Use a detailed checklist to stay organized, involve key stakeholders for their input, and focus on high-risk areas like liability, payment terms, and termination clauses. For critical contracts, consulting a legal expert can save time and prevent costly errors. 

‍

What should I focus on in a contract?

There are sections in a typical contract that often have the biggest impact on your business and carry the most risks. They include: 
‍

• Payment terms and schedules
  ‍
• Liability and indemnity clauses
  ‍
• Termination and renewal conditions
  ‍
• Deliverables, timelines, and milestones
  ‍
• Compliance with legal and regulatory requirements

‍

When should I conduct a contract review?

A contract review should be conducted before signing new agreements, during renewals periods, and whenever there are changes to the terms. Regular reviews are also crucial for long-term contracts to ensure they remain aligned with your business needs and comply with evolving regulations.

‍

What are the risks of skipping a contract review?

Skipping a contract review can expose your business to significant risks, such as:

‍

• Financial Losses: Hidden fees, unclear payment terms, or unfavorable conditions can      strain your finances.
  ‍

• Legal Disputes: Ambiguous or one-sided clauses may lead to costly lawsuits or      disagreements. 
  ‍
• Compliance Issues: Overlooking regulatory requirements can result in fines or      reputational damage.
  ‍
• Missed Deadlines: Ignoring termination or renewal terms could lock you into      unfavorable agreements or cause missed opportunities. Taking the time to review a      contract thoroughly can save you from these avoidable problems and protect your      business. 

‍

What are the 7 essential elements of a contract?

The 7 essential elements of a contract are the foundation of any legally binding agreement. They include offer, acceptance, consideration, mutual consent, capacity, legality, and intention. In simple terms, one party must make an offer that another accepts, with something of value exchanged between them. Both sides must understand and agree to the terms, have the legal ability to enter the agreement, and ensure the contract’s purpose is lawful. Finally, there must be an intention to create a binding relationship. Reviewing these components carefully is a key part of effective contract review process steps, as missing any one of them can render a contract invalid or unenforceable.

‍

How long does it take to review a contract?

The time required to review a contract depends on its complexity, scope, and the number of reviewers involved. For straightforward agreements like NDAs or basic vendor contracts, the review might take as little as 30 to 60 minutes. However, detailed vendor or SaaS agreements that involve multiple stakeholders across legal, procurement, and finance teams can take several hours or even days. Increasingly, organizations are turning to automation and AI in contract review to reduce manual effort. With modern tools, review times can be cut by up to 80%, allowing teams to focus on negotiations, compliance, and business outcomes instead of tedious clause analysis.

‍

What is the role of AI in contract review?

Artificial intelligence is transforming the contract review process steps by automating repetitive work and improving accuracy. In an AI-powered contract review, tools analyze contract text using machine learning and natural language processing to extract key clauses, flag risky or one-sided language, and identify missing terms. They can also compare versions of contracts to highlight changes or inconsistencies. The role of AI in contract review is to make the process faster, more consistent, and less prone to human error. By leveraging advanced AI contract analysis, companies can ensure compliance, lower risk, and speed up approvals across procurement and legal workflows. According to Superlegal’s Contract Review Checklist, adopting these solutions helps teams achieve better visibility and efficiency throughout the review lifecycle.