Clause library

Payment terms clause, explained

A payment terms clause sets how much is paid, when invoices are due, and what happens if payment is late.

What does a payment terms clause do?

A payment terms clause covers the fee, when it can be invoiced and how long the payer has to pay. Common deadlines are "on receipt", meaning straight away, "net 14", meaning within 14 days of the invoice, and "net 30", meaning within 30 days. Many clauses also allow interest on late payments and let the supplier pause work until overdue invoices are paid. In the UK, statutory interest on late commercial debts is set under the Late Payment of Commercial Debts (Interest) Act 1998, and gov.uk states the rate as 8% plus the Bank of England base rate.

Example wording

Example · our own drafting

The Supplier will invoice the Client on completion of each Milestone. The Client will pay each undisputed invoice within [30] days of receipt. Interest accrues on overdue sums at [4]% a year above the Bank of England base rate from the due date until payment. The Supplier may suspend work while any undisputed invoice is more than [14] days overdue.

In Plain English

The supplier sends an invoice each time a stage is finished. The client pays within 30 days of getting it, unless it disputes the invoice. Late payments carry interest at 4% a year above the Bank of England base rate. If an invoice is more than 14 days late, the supplier can stop work until it is paid.

What do people negotiate in a payment terms clause?

  • The payment deadline: on receipt, net 14, net 30 or longer.
  • Whether a deposit or upfront payment is due before work starts.
  • The late interest rate, or whether to rely on the statutory rate.
  • Whether the supplier can suspend work for unpaid invoices.
  • How disputed invoices are handled, so the undisputed part is still paid.

Which contracts include it?

Lex includes this clause in, among others:

  • Statement of work
  • Services agreement (MSA)
  • Independent contractor agreement
  • Freelancer agreement
  • Consulting agreement
  • Subcontractor agreement
  • Retainer agreement
  • Photography licence
  • Influencer agreement
  • Website build agreement
  • Offer letter

What does the law say?

Draft a statement of work with this clause

Free for the other side

Lex drafts it in Plain English beside the legal wording. Share one link; both sides agree and sign.

Frequently asked questions

What does net 30 mean?

Net 30 means the invoice is due within 30 days. The contract usually says whether the 30 days run from the invoice date or from receipt.

What is the difference between net 14 and payment on receipt?

Net 14 gives the payer 14 days to pay. Payment on receipt means the invoice is due as soon as it arrives, though in practice a short grace period is common.

Can you charge interest on late payment in the UK?

Statutory interest on late commercial debts is set under the Late Payment of Commercial Debts (Interest) Act 1998. Gov.uk states the rate as 8% plus the Bank of England base rate. Contracts often set their own rate instead.

Related