Payment Terms
What it means
Payment terms set out how much, when, and what happens if payment is late. For a small business, these terms decide the cash flow the contract produces, which frequently matters more than the headline price.
The timing convention is usually written as "Net 30" or similar, meaning payment is due 30 days after the invoice. Net 45 and Net 60 are common from larger buyers and mean you are financing their operations for one to two months. Whether the clock starts on invoice date, receipt, or acceptance of the work makes a practical difference of days to weeks.
Late payment provisions are where small contracts are weakest. Interest on overdue amounts — often 1 to 1.5 percent monthly — is standard and worth including, less because you will invoke it than because its presence changes how invoices get prioritised. The right to suspend work for non-payment is worth more still: without it, you may be contractually obliged to keep delivering to someone who has stopped paying.
For project work, the payment schedule is the real protection. A deposit before work begins, milestone payments tied to defined deliverables, and a final payment on acceptance keep your exposure bounded at any point. A single payment on completion means you carry the entire project as unsecured credit.
Also check for set-off rights, which let a client deduct claimed damages from what they owe you, and for any requirement to submit invoices through a portal with its own deadlines.
Why it matters for your business
Net 60 terms on a project you funded up front can put a profitable engagement into a cash flow hole. The margin is only real once the money arrives.
See it in action
ContractClerk extracts the payment schedule, the net terms, late payment interest and any right to suspend work, and flags where terms are unusually long or the schedule leaves you carrying the project.
Related terms
- Scope of Work — Scope disputes are the most common source of unpaid work in small business contracts, and they rarely reach a courtroom — they end with somebody absorbing the cost to keep a client, which is usually the smaller party..
- Liquidated Damages — This is a number you agree to owe before anything has gone wrong.
- Notice Period — Missing a notice deadline is the most avoidable expensive mistake in contract management.
Is there a payment terms clause in your contract?
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Review your contract free →This is general information about how payment terms clauses usually work. It is not legal advice, and how a clause applies depends on the rest of the document and on where you are. For a high-stakes agreement, talk to an attorney.