Payment Terms
A payment terms clause sets out what is payable, when invoices are issued, when they fall due, and what happens if they are disputed or unpaid.
What it does
The clause turns the commercial deal into a cash flow schedule. It states the fees or the basis for calculating them, when the supplier may invoice (in advance, on delivery, monthly in arrears, on milestones), the payment period after invoice (often 30 days), the currency, and whether taxes such as VAT are included or added.
It also handles the mechanics that cause friction: what the invoice must contain, where it is sent, whether payment is by bank transfer or card, and who bears bank charges. Good clauses include a dispute process: the customer must raise a dispute within a set period, pay the undisputed part, and the parties resolve the rest without the supplier suspending service in the meantime.
Finally, the clause states the consequences of non-payment. These usually include interest, a right to suspend services after notice, and a right to terminate for cause if the default continues.
Example wording
The Supplier shall invoice the Fees monthly in arrears. The Customer shall pay each invoice within thirty (30) days of the invoice date by bank transfer to the account specified on the invoice. All Fees are exclusive of VAT, which shall be added where applicable. If the Customer disputes any invoice in good faith, it shall notify the Supplier within ten (10) business days of receipt, pay the undisputed portion when due, and the parties shall resolve the dispute promptly. The Supplier may suspend the Services on ten (10) business days’ written notice if any undisputed amount remains unpaid after its due date.
Risks for SMBs
Long payment terms from large customers. A large customer that imposes 60, 90, or 120-day terms is using its SMB supplier as a bank. The supplier pays staff monthly and waits a quarter to be paid. Within the EU, rules on late payment limit how far this can go, but only if the supplier is willing to insist. See late payment interest.
Invoice-date versus receipt-date. “30 days from invoice” and “30 days from receipt of a valid invoice” can differ by weeks if the customer’s approval process is slow, or if it rejects invoices for minor formatting reasons. Specify what a valid invoice needs and when the clock starts.
Annual payment in advance. SaaS suppliers often require the whole year up front. If the supplier fails or the customer terminates for cause, getting a refund of the unused period depends on the termination clause, not the payment clause. Check both.
Set-off. A customer may want to deduct amounts it believes the supplier owes it from invoices due. A supplier may exclude set-off entirely. Either position can be reasonable, but an SMB should know which one it has agreed to.
Suspension without warning. A supplier right to suspend on non-payment with no notice period can take a business offline over an invoice lost in an inbox. Require written notice and a short grace period before suspension.
Common variants and negotiation points
- Payment period. 30 days from invoice is the standard middle ground in Europe. Suppliers can offer a small discount for shorter terms rather than accept longer ones.
- Milestone or deposit structures. For project work, a deposit on signing and payments tied to defined milestones protect the supplier without asking the customer to pay everything in advance.
- Dispute window. A fixed period, 10 to 15 business days, for raising invoice disputes, after which the invoice is deemed accepted, gives both sides certainty.
- Suspension steps. Notice, a grace period of 10 to 14 days, then suspension, then termination. Each step in writing.
- Currency and exchange. In cross-border deals, fix the currency and state who bears exchange rate risk and bank charges.
Related clauses
- Late payment interest: the cost of paying late, including EU statutory rules.
- Price increase: how and when the fees can change.
- Termination for cause: non-payment as a ground for termination.
- Audit rights: checking that usage-based fees are calculated correctly.
This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.
Tracking renewal dates, notice periods, and other contract obligations is what Trackado does.