Payment and pricing clauses in a contract

What this group of clauses has to settle

Between them these fourteen clauses answer four questions. When is money due, which is the job of the payment terms, invoicing and milestone clauses. How much is it, which brings in the deposit, retention, expenses and currency clauses along with the tax position under a GST clause. What happens when the price has to move, which is where price adjustment, CPI escalation and most favoured customer wording sits. And what the supplier may do when nothing arrives, which is the interest, set off and suspension for non payment group. A contract that answers all four rarely produces a dispute worth arguing.

Choosing between them

Start with the payment terms clause, since every other clause in the group is written against the due date it sets. Add a deposit clause where work starts before any money arrives, and milestone payments instead where the job runs long enough that a single invoice at the end would carry the supplier for months. Add retention only in construction and fit out work, where it is the convention rather than an imposition. Interest and suspension are the enforcement pair: interest prices the delay, suspension stops the delay getting worse, and a contract that includes one without the other usually finds out why.

How to read a page here

Every page defines the clause in a sentence or two, sets out what goes wrong when it is left out, and prints a sample wording with numbered sub clauses that can be read against your own draft. After the sample come the common variants, which are the versions that favour the buyer, the supplier or neither, and the negotiation points, which are the three or four things the other side usually asks to change. The frequently asked questions cover the practical edges. Sample wording is a drafting aid, not legal advice, and local law decides whether a term is enforceable.

Every page in this collection

• CPI escalation clause: the formula and the sample wording

  An index linked increase looks mechanical and still produces disputes, almost always because the clause names the index loosely. The fix is to name the series, the quarters and the arithmetic.

• Currency clause: which currency, and who carries the exchange risk

  A cross border invoice can be paid in full and still arrive short. The clause decides whose problem that is before the first transfer rather than after it.

• Deposit clause: what happens to money paid up front

  A deposit does two jobs at once, funding the early cost of a job and proving the customer is serious. The clause only works if it says which of those jobs it is doing.

• Expenses clause: which costs the client repays

  Nobody argues about the fee on the first invoice. They argue about the flight, the parking and the stock photography licence, because nothing in the contract said who was paying for those.

• GST clause: saying whether the price includes GST

  A price written without a tax position is a price that is ten per cent wrong to somebody. The clause exists to put the argument before the first invoice instead of after it.

• Invoicing clause: when invoices go out and what they must show

  A payment term is only as good as the invoice that triggers it. Most late payments that look like bad behaviour start as an invoice missing something the customer's system insists on.

• Late payment interest clause: setting a rate that holds

  Interest on an overdue invoice is rarely collected in full, and that is not the point of the clause. Its value is that it gives a small supplier something concrete to write in the second reminder.

• Milestone payment clause: paying by stage

  Milestones sound like a scheduling device and behave like a credit control device. The stage that is worth arguing about is never the first one, it is the last one, where most of the margin usually sits.

• Most favoured customer clause: promising the best price

  A buyer asks for this clause to stop shopping every year. A supplier gives it and quietly loses the ability to discount anywhere else, which is why the definition of comparable does all the work.

• Payment terms clause: when the money is actually due

  Most invoice disputes are not arguments about the amount, they are arguments about the date. A payment terms clause removes the argument by naming the trigger, the period and the method before any work starts.

• Price adjustment clause: moving a price after signing

  A multi year contract at a fixed rate is a bet on costs, and one side always loses it. An adjustment clause replaces the bet with a procedure.

• Retention money clause: holding back part of a progress claim

  Retention is the money a subcontractor has earned and cannot spend. Getting it back is a paperwork exercise, and the clause decides how long that exercise takes.

• Set off clause: deducting what the other side owes

  Set off looks like an accounting convenience and works as leverage. Whoever holds the right to deduct decides who funds a dispute while it is being resolved.

• Suspension for non payment clause: pausing work, not ending it

  Termination is a blunt response to a late invoice, because it ends the revenue as well as the exposure. Suspension keeps the contract alive and puts the pressure where it belongs.