Payment Terms Clause in UK Contracts: What It Means & Example Wording

When to Include a Payment Terms Clause

• In every commercial contract where one party is paying the other for goods or services
• In freelancer and consultancy agreements to establish clear expectations about when invoices will be paid
• In supply agreements with milestones, staged payments, or retainer arrangements

Example Wording

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Payment Terms Clause Enforceable in the UK?

Payment terms clauses are enforceable in the UK. The Late Payment of Commercial Debts (Interest) Act 1998 provides a statutory right to charge interest at 8% above the Bank of England base rate on late B2B payments, plus a fixed sum for debt recovery costs (£40-£100 depending on debt size). This applies even if the contract does not include late payment terms. However, the Prompt Payment Code (voluntary) encourages payment within 30 days. Payment terms exceeding 60 days in B2B contracts may be challenged as grossly unfair under the Act.

Common Mistakes

• Setting payment terms of 60+ days for small business suppliers — this may be challenged as grossly unfair and can damage supplier relationships
• Failing to specify whether payment terms run from the date of invoice, date of receipt of invoice, or date of delivery — ambiguity causes disputes
• Not including clear invoicing requirements — specifying what must appear on an invoice prevents the common excuse of 'the invoice was not in the correct format'