Payment Terms Clause template clause

    Updated: 23 March 2026

    Please note: these example clauses are intended as a starting point, not as legal advice. Always adapt the text to your specific situation and have important contracts reviewed by a legal professional.

    Clause text

    Article [X] - Payment Terms

    1. [Supplier] shall invoice the agreed fees in accordance with the invoicing schedule set out in this Agreement. Invoices shall be submitted electronically to the email address designated by the [Buyer].

    2. Each invoice shall include at a minimum:
    (a) invoice number and date;
    (b) description of the goods or services delivered;
    (c) the agreed price, excluding VAT;
    (d) the VAT amount and total amount including VAT;
    (e) the reference number of this Agreement.

    3. The [Buyer] shall pay each undisputed invoice within [e.g. 30 calendar days] of the invoice date ("Payment Period"). Payment shall be made by bank transfer to the account specified by [Supplier].

    4. If the [Buyer] disputes an invoice in whole or in part, the [Buyer] shall notify [Supplier] in writing within [e.g. 10 Business Days] of the invoice date, stating the reasons for the dispute. The undisputed portion of the invoice shall be paid within the Payment Period.

    5. If the [Buyer] fails to pay an undisputed invoice within the Payment Period, the [Buyer] shall be in default without the requirement for a formal notice of default, and shall pay interest on the outstanding amount at the rate of [e.g. 2%] above the base rate of [central bank] from the date of default until the date of payment in full.

    6. All reasonable costs incurred by [Supplier] in collecting overdue amounts, including legal fees and collection agency charges, shall be borne by the [Buyer], subject to a minimum of [currency] [amount] per claim.

    7. [Supplier] may suspend performance of its obligations under this Agreement for as long as the [Buyer] has any overdue invoices outstanding, provided that [Supplier] has given the [Buyer] [e.g. 7 days'] prior written notice of its intention to suspend.

    What does this clause mean?

    A payment terms clause establishes when and how invoices are issued, what they must contain, when payment is due, and what happens when a payment is late. It provides the financial backbone of any commercial contract.

    The dispute mechanism (paragraph 4) prevents a buyer from delaying payment indefinitely by raising objections. The undisputed portion must still be paid on time. The late payment interest (paragraph 5) runs automatically from the due date, without requiring a formal demand.

    Research from CIPS shows that 80% of invoices do not match the underlying contract terms. That mismatch causes delays, disputes, and administrative cost. Clear invoicing requirements and a fixed payment deadline reduce that gap. World Commerce & Contracting estimates that 9.2% of annual revenue is lost to poor contract management, with payment errors and missed collection opportunities accounting for a significant share.

    When should you use this clause?

    Payment terms belong in every commercial contract involving the supply of goods or services for payment. The clause is relevant for service agreements, supply contracts, subscription agreements, and project contracts.

    Adjust the payment period to suit your sector and cash-flow needs. Shorter terms (14 days) improve your working capital position but may strain the commercial relationship if the buyer is accustomed to longer cycles. Longer terms (45 to 60 days) accommodate large corporate buyers with slower internal approval processes but increase your cash-flow risk.

    The suspension right (paragraph 7) is a powerful remedy against persistent late payers, but use it carefully: ensure the prior written notice has been sent so you do not inadvertently put yourself in breach.

    Customize these elements

    • 1Adjust the payment period to your industry norm: 14 days for smaller assignments, 30 days as default, 45 to 60 days for large enterprise buyers with slow approvals
    • 2Consider an early payment discount (e.g. 2% if paid within 10 days) if cash flow is a priority
    • 3Specify whether invoicing occurs on delivery, monthly in arrears, or on milestone completion for longer projects
    • 4Set the minimum amount for collection costs based on your average invoice size
    • 5For international contracts, specify the currency and which party bears the foreign exchange risk

    Sources

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