Payment Terms in Contracts: How to Get Paid Faster and Protect Cash Flow

The Most Common Payment Terms (and Their Real Meaning)

Net-30: Payment due 30 days after invoice. Reality: often means 45-60 days. Net-15: Standard for small businesses and freelancers. Due on receipt: Pay immediately — ideal but rare. 2/10 Net-30: 2% discount if paid within 10 days, otherwise full amount in 30. Good for incentivizing early payment. Payment in advance: Full payment before work begins — best for new clients.

Milestone Payments vs Hourly Billing

Fixed-price projects should use milestone payments, not "50% upfront, 50% on completion." Better: 25% on kickoff → 25% on first draft → 25% on final delivery → 25% 30 days after delivery. This aligns incentives: the client has leverage (final 25%) and you have cash flow throughout. Never have one milestone above 50% — the client controls too much of your cash.

Late Payment Penalties — Make Them Count

A standard clause: "Late payments accrue interest at 1.5% per month (18% APR)." Without it, clients can delay payment indefinitely for free. Add escalation: "If payment is more than 60 days past due, Contractor may suspend all work until the account is current." This gives you teeth without going to court.

International Payment Gotchas

Currency risk: Specify currency. "All amounts in USD" if you are invoicing from abroad. Transfer fees: "Client bears all wire transfer and currency conversion fees." Taxes: "All amounts exclusive of VAT/GST/sales tax." The client pays local taxes, not you.

Kill Fee — Protect Yourself Against Cancellation

Standard: "If Client terminates without cause, Client shall pay for all work completed through termination date plus a kill fee equal to 25% of the remaining contract value." This covers your opportunity cost of blocking out time for a project that gets cancelled. Without a kill fee, clients can cancel on day 1 of a 6-month project and you have zero recourse.

Try PactLens free — upload a contract for AI risk analysis in 30 seconds.