Agreeing payment terms in writing

What to agree

1. The amount or how it is calculated, and whether it includes VAT.
2. Deposits or upfront payments, and whether they are refundable.
3. Stage payments or milestones for longer jobs.
4. When each invoice is issued and the payment period — for example, 14 or 30 days from the invoice date.
5. How payment should be made, and the account details.
6. What happens if payment is late: whether work can be paused, and any interest charged.

What the law provides if nothing is agreed

For business-to-business contracts, the Late Payment of Commercial Debts (Interest) Act 1998 gives a supplier the right to claim interest on late payment. Where no payment date has been agreed, a payment is generally treated as late 30 days after the customer receives the invoice or the goods or services, whichever is later.

The statutory interest rate is 8 percentage points above the Bank of England base rate. The supplier can also claim a fixed sum for the cost of recovering the debt, which depends on the size of the debt: £40 for debts under £1,000, £70 for debts from £1,000 to under £10,000, and £100 for debts of £10,000 or more.

The parties can agree their own payment terms and their own remedy for late payment, but a contractual remedy must be substantial, and very long payment periods can be challenged. Under the rules, an agreed payment period longer than 60 days is generally only permitted if it is not grossly unfair to the supplier.

These rules apply to commercial contracts between businesses. Sales to consumers are governed by different rules.

Why writing it down matters

If payment terms are only discussed verbally or scattered through messages, it can be hard to show what was agreed, when payment was due, or whether a deposit was refundable. A short written agreement that states the payment terms clearly — and that the customer has signed — makes chasing payment simpler and reduces arguments.

If you are relying on messages, a useful habit is to send a single message summarising the agreed price and payment terms, and ask the customer to confirm.

Common mistakes

Agreeing a price without saying whether VAT is included. Starting work without agreeing when the deposit is due. Using "payment on completion" without defining what completion means. Not stating what happens to the price if the scope changes. Each of these is easy to fix in writing before work starts, and difficult to fix afterwards.

How OfClause helps

When you paste a conversation into OfClause, payment terms are reviewed like any other term: you see what was proposed, accepted, rejected or replaced, with the source message. OfClause does not guess payment schedules or instalments that were never stated — missing payment terms are flagged so you can agree them before drafting. If no payment is involved, you can confirm that explicitly.

Deposits and stage payments

For larger or longer jobs, asking for a deposit or splitting payment into stages reduces the risk of doing a large amount of work before being paid. Be specific about what each payment is for and when it becomes due, for example 30% on signing, 40% on delivery of the first draft and 30% on final sign-off, and about whether deposits are refundable if the customer cancels.

If you pause work when a payment is late, say in the agreement that you are entitled to do so. Outside construction contracts, which have a statutory right to suspend for non-payment after giving notice, pausing work over late payment without a clause allowing it could put you in breach.

For recurring work such as retainers or maintenance contracts, say whether the fee is paid in advance or in arrears, how price increases are handled, and what notice is needed to end the arrangement.