Obviously, contracts represent a potential major source of income for you and your company, if you can fulfill the criteria. Before accepting them, always scope out the destination and calculate the amount of hoops you need to jump through to fulfill it. Sometimes, you'll barely turn a profit or even go in the red, even if a contract is successfully completed.
However, that needn't be a problem. A fulfilled contract offsets expansion costs and will connect the target to your greater railway network, giving you long term income and access to their products. Always weigh the pros and cons of a contract in advance.
Failing a contract will result in penalties against your account, usually on the order of 25% of the contract's value.