How to Set Payment Terms in a Contract
Set payment terms by specifying the amount, currency, due date or payment window (e.g. 30 days from invoice), accepted payment methods, and late payment consequences including statutory interest rights under the Late Payment of Commercial Debts Act 1998.
Last updated: February 2025
Step-by-Step Guide
Define the payment amount and schedule
State the total price or rate, whether VAT is included or additional, and the payment schedule (upfront, milestones, monthly, or on completion).
- •Always state whether amounts are inclusive or exclusive of VAT.
Set the payment window
Specify when payment is due, such as 14 or 30 days from the date of invoice. Shorter terms improve your cash flow.
- •30 days is standard for B2B, but you can negotiate shorter terms.
Include late payment provisions
Reference your right to charge statutory interest (8% plus the Bank of England base rate) and the fixed compensation amounts under the Late Payment of Commercial Debts Act 1998.
- •Including these provisions in the contract serves as a deterrent even if you rarely invoke them.
Specify payment method and details
State accepted payment methods (bank transfer, card, etc.) and include bank details or a note that they will be on each invoice.
- •Include a clause allowing you to update payment details with written notice to prevent fraud.
Legal Requirements
The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the statutory right to charge interest on late B2B payments at 8% over the Bank of England base rate, plus fixed compensation of £40-£100 depending on the debt size. Payment terms exceeding 60 days may be challenged as grossly unfair under the Act.
Common Mistakes
Template / Example
When to Get a Solicitor
Usually not needed for standard payment terms. Consider advice if structuring complex milestone payments, retention clauses, or international payment arrangements.
FAQ
What is the standard payment term for UK businesses?
30 days from invoice date is the most common B2B payment term in the UK, though many small businesses prefer 14-day terms for better cash flow.
Can I charge interest on late payments without it being in the contract?
Yes. The Late Payment of Commercial Debts Act 1998 gives you a statutory right to charge interest on late B2B payments even if it is not mentioned in the contract.
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