A Business-Minded Approach To Employment Law

Evaluating pre-settlement risk before signing a contract

On Behalf of | Feb 13, 2023 | Employment Contracts |

Thousands of Florida residents and businesses enter into contracts every day, but few of them can be actually sure that the other party will fulfill their obligations. This is why evaluating pre-settlement risk is usually an important part of the due diligence process that takes place before important contracts are signed. Once the risk has been assessed, the costs of recovering should the other party fail to live up to their commitment can be priced into the contract.

Pre-settlement risk

Pre-settlement risk is particularly important when the terms of a contract are subject to market conditions and finding an alternative party could increase costs significantly. It is for this reason that pre-settlement risk is usually associated with financial contracts and agreements to buy goods that fluctuate greatly in price. Evaluating this risk is also important when the failure of a party to pay on time could cause the other party to miss opportunities or leave them unable to meet their financial obligations.

Due diligence

Determining pre-settlement risk is only a small part of the due diligence process. Other factors that should be considered include the reputation and creditworthiness of the other party, the likelihood that factors like interest and currency exchange rates will change before the terms of the contract are fulfilled, and the options available should the other party default. Performing thorough due diligence also greatly reduces the chances of becoming embroiled in a breach of contract lawsuit.

Think carefully before signing

Contracts are legally enforceable documents, so it pays to think carefully before signing them. Evaluating pre-settlement risk involves determining the consequences and financial costs of a breach, and it is an important part of the due diligence process. Before you enter into a contract, you should think carefully about the worst things that could happen if the other party fails to honor the agreement.