How to Write Payment Terms in a Contract: 2026 Guide
Net 30, milestones, deposits, late fees, kill fees — exactly how to structure payment terms that get you paid on time.
Published 2026-04-22 · 7 min
Payment Terms = The Most Important Clause
More disputes happen over payment than any other clause. Vague payment terms = late payments + collection nightmares. Here's exactly how to structure them.
Element 1: Total Fee
State the total clearly. If hourly, include rate AND not-to-exceed amount. Avoid 'TBD' or 'as negotiated.'
Element 2: Payment Schedule
Common structures: 50/50 (50% deposit, 50% on completion — risky for both sides), 25/25/25/25 (quarterly milestones — better), Milestone-based (tied to specific deliverables — best). For ongoing work: monthly retainer in advance.
Element 3: Due Date
Net 7, Net 15, Net 30 — specify days from invoice date. Net 30 is most common but unfavorable to small business. Negotiate Net 7-15 when possible. Specify business days vs calendar days.
Element 4: Accepted Methods
List acceptable payment methods: ACH/bank transfer (preferred — low fees), check (slow), wire (fast but expensive), credit card (convenient but 3% fee — pass to client?), PayPal/Stripe (convenient, fees 2.9%+30¢).
Element 5: Late Fees
Standard: 1.5% per month (18% APR). Higher rates may be void as usurious. Specify when late fee starts (typically after grace period of 5-10 days). Compound monthly. State law may limit rates — check yours.
Element 6: Suspension Rights
Right to suspend work for non-payment after 15+ days late. Without this, you must continue performing while not getting paid. Critical protection.
Element 7: Collection Costs
Right to recover collection costs and attorney fees if forced to collect. Without this clause, you eat the costs even when you win.
Element 8: Kill Fees (Project Work)
Cancellation fee if client terminates: typically 100% if past 50% completion, 50% if past 25% completion. Protects against wasted preparation time.
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FAQ
What's a reasonable late fee?
1-2% per month (12-24% APR). Higher rates may be unenforceable as usury. Always check your state's maximum allowed interest rate.
Should I require a deposit?
Yes for any project >$500. 25-50% is standard. It commits the client and protects you if they ghost. Higher deposits (50%) for new clients without payment history.
Can I charge for invoice processing?
No, that's considered part of normal business operations. But you can charge convenience fees for credit card payments (typically 3%) if disclosed upfront.
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