Payment terms clauses establish when payment is due and consequences of late payment. Vague terms like "payment upon completion" create disputes. Clear terms like "Net-30 with 1.5% monthly late fee" create enforceable obligations that protect cash flow. The common 1.5% monthly (18% annually) rate is below usury limits in most states and commercially reasonable.
Payment Schedule Options
Common Payment Terms
| Term | Meaning | Best For |
|---|---|---|
| Net-15 | Due within 15 days of invoice | Contractors with tight cash flow |
| Net-30 | Due within 30 days of invoice | Most common standard |
| Net-60 | Due within 60 days of invoice | Large enterprise customers |
| Due on Receipt | Due immediately upon invoice | Project completion, one-time work |
| 50/50 Split | 50% upfront, 50% on completion | Large projects, reduces risk |
Payment Terms Clause Template
**PAYMENT TERMS.**
(a) **Due Date.** Customer shall pay all invoices within thirty (30) days of invoice date ("Net-30").
(b) **Late Fees.** Overdue amounts bear interest at the rate of one and one-half percent (1.5%) per month (18% annually), or the maximum rate permitted by law, whichever is less.
(c) **Grace Period.** Late fees apply to payments more than thirty-five (35) days past invoice date.
(d) **Payment Method.** Payment by wire transfer, ACH, or check to [payment details]. Payment is effective when received by Vendor.
(e) **Disputed Amounts.** Late fees do not apply to amounts Customer disputes in good faith, provided Customer notifies Vendor within ten (10) days of invoice and pays all undisputed amounts.
(f) **Collection Costs.** Customer shall reimburse Vendor for reasonable costs of collecting overdue amounts, including attorneys' fees.
Late Fee Rate Guidelines
Late Fee Rates by State
| Rate | Annual Equivalent | Enforceability |
|---|---|---|
| 1.0%/month | 12% | Safe in all states |
| 1.5%/month | 18% | Safe in most states (common standard) |
| 2.0%/month | 24% | May exceed usury limits in some states |
| "Maximum permitted" | Varies | Safe but less specific |
Safe default: Use "1.5% per month or the maximum rate permitted by applicable law, whichever is less." This provides strong incentive while ensuring compliance.
Grace Period Options
- No grace period: Late fees from Day 31 on Net-30 terms
- 3-5 day grace: Accommodates mail/processing delays (most common)
- First occurrence waiver: "Late fees waived for first late payment; subsequent late payments incur fees from due date"
Service Suspension for Non-Payment
**SERVICE SUSPENSION.** (a) Vendor may suspend Services if payment is more than thirty (30) days overdue, upon five (5) days' written notice. (b) Suspension does not relieve Customer of payment obligations for Services already rendered. (c) Services resume within two (2) business days of receipt of full payment. (d) Vendor may terminate Agreement if Customer is more than sixty (60) days past due or late on payments three (3) times in any twelve-month period.
Frequently Asked Questions About Payment Terms
What's the most common payment term?
Net-30 is the standard for most B2B contracts. It balances vendor cash flow needs with customer payment cycles. Enterprise customers may negotiate Net-60; contractors with tight cash flow may request Net-15 or 50% upfront.
Is 1.5% monthly late fee enforceable?
Yes, in most states. 1.5% monthly (18% annual) is below usury limits in the majority of U.S. states. However, some states have lower caps. Add "or maximum permitted by law, whichever is less" for safety.
When is payment "received" vs. "sent"?
Specify in your contract. "Payment effective when received" is better for vendors (customer bears mail delay risk). "Payment effective when sent" is better for customers. Electronic payments eliminate this ambiguity.
Can I suspend services for non-payment?
Yes, if your contract includes this right. Add a suspension clause requiring notice before suspension. This operational remedy often motivates payment faster than collection threats.
Can AI help draft payment terms?
Yes, AI tools like River's Payment Terms Generator produce compliant clauses. Select payment schedule, late fee rate, and jurisdiction. The AI generates complete provisions with grace periods, dispute handling, and collection rights.
Clear payment terms protect cash flow and reduce disputes. Use River's Payment Terms Generator to create enforceable provisions that ensure timely payment.