Payment Terms in a Contract: What the Payment Clause Should Say

A contract’s payment terms should state how much is payable (or how it is calculated), in which currency, when it is due, how and to which account it is paid, who bears bank charges and taxes, what a valid invoice must contain, what interest applies to late payment, and how disputed invoices are handled. Each gap you leave is filled by the governing law, which may not match what you expected.

What should a payment clause include?

Cover each element below in the contract or a schedule it refers to:

Element	What to write	If the contract is silent (examples)
Amount	Fixed price, rates, milestones or formula; what is included (expenses, materials)	Disputes over what was agreed
Currency	The currency, and whether payment must be made only in it	UNIDROIT: payment in the currency of the place for payment (Art. 6.1.10)
Due date	A date or a period from a defined event (“30 days from receipt of a valid invoice”)	CISG: when the goods or documents are placed at the buyer’s disposal (Art. 58)
Place and method	Bank transfer details, accepted methods	CISG: at the seller’s place of business (Art. 57); UNIDROIT: at the obligee’s place of business (Art. 6.1.6)
Bank charges	Who pays sending, intermediary and receiving fees	UNIDROIT: each party bears the costs of its own performance (Art. 6.1.11)
Taxes	Whether prices include or exclude VAT or sales tax; who bears withholding tax and whether the payer grosses up	Rules depend on each country’s tax law
Invoicing	Content of a valid invoice, address, PO numbers, deadlines	Disputes over whether payment is due yet
Late payment	Interest rate, suspension right, termination right, recovery costs	See the interest table below
Disputed invoices	Notice period, payment of the undisputed part, escalation	Whole invoices withheld over small disputes

When is payment due if the contract does not say?

Under the governing law’s default rule, which differs by legal system. For an international sale of goods governed by the CISG, the buyer must pay when the seller places the goods, or documents controlling them, at the buyer’s disposal, and the seller may make payment a condition for handing them over (CISG, Art. 58). The buyer must pay on the due date “without the need for any request” from the seller (Art. 59), at the seller’s place of business unless agreed otherwise (Art. 57).

Under Taiwan’s Civil Code, where a date is fixed, the debtor is in default as soon as it passes; where no date is fixed, the debtor is in default once the creditor has demanded performance (Civil Code, Art. 229). A clear due date therefore avoids an argument about when interest starts.

Which currency, and who pays the bank charges?

Name the currency and say whether payment in any other currency is excluded. Under the UNIDROIT Principles, a debt expressed in a foreign currency may be paid in the local currency of the place for payment unless that currency is not freely convertible or the parties agreed payment only in the stated currency (Art. 6.1.9). If the payer pays late, the payee may choose the exchange rate at the due date or at actual payment.

For transfers, the UNIDROIT Principles treat the debt as paid when the transfer to the payee’s bank becomes effective (Art. 6.1.8), and each party bears its own costs of performance (Art. 6.1.11). In practice, international transfers can lose intermediary-bank fees on the way, so state who pays sending, intermediary and receiving charges, and that the payee must receive the full invoiced amount if that is the deal.

If exchange-rate risk matters, say who bears it: a fixed rate, a rate on a stated date, or a price adjustment mechanism.

Can you charge interest on late payment?

Yes. The CISG, the UNIDROIT Principles, Taiwanese law and UK law all give a right to interest on overdue money, but the rate and any cap depend on the governing law, so state the rate in the contract and check it is lawful there.

Law	Default rule	Limits	Source
CISG (international sale of goods)	Interest on any sum in arrears, plus damages	No rate stated	Art. 78
UNIDROIT Principles (where chosen)	Interest from the due date, even if non-payment is excused	Average short-term bank lending rate to prime borrowers for the currency at the place for payment	Art. 7.4.9
Taiwan	Default interest at the statutory rate, or the agreed rate if higher	Statutory rate 5% a year (Art. 203); agreed interest above 16% a year is invalid for the excess (Art. 205)	Civil Code, Arts. 203, 205, 233
England, Wales and Northern Ireland (business-to-business supply of goods or services)	Statutory simple interest is an implied term	8% a year over the Bank of England official dealing rate on the previous 30 June or 31 December; plus a fixed sum of £40, £70 or £100 by debt size, and further reasonable recovery costs	Act s. 1, s. 5A, 2002 Order art. 4

Under the 1998 Act, a contract term that excludes statutory interest is void unless the contract gives a “substantial contractual remedy” for late payment (s. 8).

What else should the clause say about late or disputed payments?

Give yourself practical tools, not only interest:

• Suspension. A right to suspend work or deliveries after a stated period of non-payment, with notice. Without an express right, stopping work can itself be a breach.
• Termination. A right to terminate for non-payment after a written notice and a cure period. In Taiwan, a party may also rescind if the defaulting party ignores a reasonable deadline (Civil Code, Art. 254).
• Assurance. Under the UNIDROIT Principles, a party that reasonably expects a fundamental non-performance may demand adequate assurance and withhold its own performance meanwhile (Art. 7.3.4).
• Disputed invoices. A short period to dispute an invoice in writing with reasons; the undisputed part to be paid on time.
• Security. Deposits, milestone payments, letters of credit or escrow for large or first-time deals.

How these play out if the other side still does not pay is covered in how to enforce a contract.

Pre-signature checklist for payment terms

• Is the amount, or its formula, unambiguous, and is everything it includes listed?
• Is the currency named, and is payment in other currencies excluded if that matters?
• Is the due date fixed by a date or a defined event?
• Are bank details, charges and the “full amount received” point covered?
• Are VAT, sales tax and withholding tax addressed for both countries?
• Are late-payment interest, suspension and termination rights stated, and lawful under the governing law?
• Is there a procedure for disputed invoices and for price changes when scope changes?

Frequently asked questions

What does “net 30” mean in a contract?

It is shorthand for payment due 30 days after a reference date, usually the invoice date. Say which date starts the clock (invoice date, receipt of invoice, or acceptance of the work), because they can be weeks apart.

Can I agree a higher late-payment interest rate than the law’s default?

Often yes, within limits. In Taiwan an agreed rate applies if higher than the statutory rate, but interest above 16% a year is invalid for the excess (Civil Code Arts. 205, 233). Check the governing law before agreeing a rate.

Should the payment clause cover what happens if the scope changes?

Yes, at least by reference to a change-order procedure: who can approve changes, how they are priced, and when the extra amount is invoiced. Our guide on what to look for when reviewing a contract covers the rest of the contract.