Payment Terms and Late Fees

What This Clause Does

Payment terms define when invoices are due (Net 30 is common) and the consequences of late payment. Late fees are typically a percentage of the outstanding amount per month, but they can add up quickly. Some agreements also give the vendor the right to suspend your access the moment a payment is late.

For businesses with many vendors, late payment can happen accidentally due to accounting delays, not bad faith. Check whether there's a grace period before late fees kick in or access is suspended. Even a 5-day grace period can prevent a billing hiccup from becoming a service disruption.

What This Looks Like in a Contract

"Invoices are due and payable within [30] days of invoice date. Amounts not paid when due shall accrue interest at the rate of [1.5%] per month (or the maximum rate permitted by law) until paid in full. Company reserves the right to suspend access if payment is overdue by more than [15] days."

Red Flags to Watch For

• No grace period before late fees begin or access is suspended
• Late fee rate exceeds 1.5% per month (18% annual equivalent)
• Suspension triggers immediately upon non-payment, with no cure window
• Fees continue to accrue during any dispute about the invoice

Negotiation Strategies