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Payment terms clause: meaning and sample wording

The payment terms clause says when a party can invoice, how long the other party has to pay, in what currency and by what method, and what happens when an invoice is disputed.

When to use it

Every contract where money changes hands. Vague payment terms are one of the most common causes of cash-flow problems for small businesses.

Sample payment terms clause

The Supplier shall invoice the Customer monthly in arrears for the Services performed in the previous month. The Customer shall pay each invoice within thirty (30) days of the date of receipt, in US dollars, by bank transfer to the account specified on the invoice.

If the Customer disputes any part of an invoice in good faith, it shall notify the Supplier in writing within ten (10) days of receipt, giving reasons, and shall pay the undisputed part by the due date. The parties shall work together in good faith to resolve the dispute promptly.

All amounts are exclusive of sales tax, value added tax and similar taxes, which the Customer shall pay in addition at the applicable rate.

What to check

  • When the clock starts"Within 30 days of receipt" and "within 30 days of the invoice date" can differ by a week. "End of month following" is longer still.
  • Legal limits on long termsSome laws cap business payment terms. In the European Union, payment terms between businesses generally may not exceed 60 days unless expressly agreed and not grossly unfair to the creditor.
  • Disputed invoicesRequiring disputes to be raised quickly, and the undisputed part to be paid, stops a small query from holding up a whole invoice.
  • Taxes and currencyState whether prices include tax and which currency applies, especially with international customers.

Check what net 30, end-of-month or 2/10 net 30 terms mean in dates with the free invoice due date calculator.

Make the variable parts fill themselves in

In a Word template, replace the details that change with {tags} and wrap optional wording in a section. Clausery turns them into questions, so each document only includes the parts that apply:

The Supplier shall invoice the Customer {#is_invoiced_in_advance}in advance{/is_invoiced_in_advance}{^is_invoiced_in_advance}in arrears{/is_invoiced_in_advance}. The Customer shall pay each invoice within {payment_days} days of receipt.

Paste this into your own template, then check it with the free template tag checker or read the template syntax.

Questions

What does "net 30" mean?

Payment is due 30 days after the invoice date, or after receipt if the contract says so. "Net 60" and "net 90" work the same way with longer periods.

Can I stop work if a customer does not pay?

Only if the contract allows it or the general law does. Stopping work without a contractual right can itself be a breach, so include a right to suspend on notice for overdue invoices.

Can I use this sample wording as it is?

It is a general starting point. Contract law differs between countries and states, and the right wording depends on the deal, so have it reviewed before you rely on it.

Free templates that use it

Related clauses

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This page is general information, not legal advice. Laws differ between countries and states; have wording reviewed for your situation before you rely on it.