Three Ways to Write Payment Terms

Payment terms don’t have to be complicated, but they should be very explicit about all of the details. Don’t just say “Bob shall pay Gene $500.” Doing so leaves out too much detail. When is the payment due? Is it refundable? What about expenses? Etc. The more clarity you provide, the more likely you’ll get paid (and paid on time) and the less likely you’ll end up in a dispute with your client.

In this post, we’ll talk about three common payment types and provide some additional thoughts on each.

Fixed Fees

Fixed fees are a great way to make sure the parties are on the same page. When setting your fixed fee, consider both the time you are likely to spend, plus the value of the service you provide. Just because something only takes you 15 minutes, it doesn’t mean it isn’t valuable. You likely spent years getting so good that you can do it that fast.

Once you establish your fixed fee, think about the following (and explain them in your payment provision):

• Do you need to provide invoices? If so, when are they due?
• Do you want to be paid up front? If so, is any portion of the fee refundable?
• Do you want a downpayment up front? If so, is it refundable?
• Do you want to be paid all at the end?
• Do you want to receive progress payments? If so, are they triggered by dates or milestones?
• Are there any fees (like reimbursable expenses) that are not included in the fixed fee? If so, how will you invoice for them and when will the invoice be due?

Also with fixed fees, make sure your scope of work is very clear. You need to avoid scope creep!!

Hourly

Charging hourly is very common. When billing hourly, you should think about the following:

• What is your hourly rate?
• How long will you honor that rate?
• Will it ever change based on different services, or based on “rush” requests?
• Do you want to charge a down payment up front? If so, is it refundable?
• When/how will you issue invoices?
• When must the client pay those invoices? Net 30? Net 10?
• Do you want the right to include reimbursable expenses in your invoices?

Retainers

Retainers are great when you and your client want to lock in a certain number of hours each week/month, or a certain set of services each week/month. When charging hourly, consider the following:

• What is the retainer amount? And what time period does it cover?
• If the client doesn’t use all the allocated hours, do you have to give them a refund or credit or do you get to keep the fee regardless?
• What happens if the client wants more hours? Will you provide them? If so, what will you charge?
• When does the retainer relationship begin?
• How long does the retainer relationship last? Can either side terminate it early? If so, you should probably require some kind of advance notice (like 30 days).
• Do you need to provide invoices for each retainer period? Or must the client pay without an invoice?

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Related Guides

There’s so much more to learn! Here are a few related guides you should read:

• Templates: Four ways to get a contract template
• The Boilerplate: 12 “boilerplate” contract provisions you should know
• The Skinny: What is a Contract?
• Drafting: Five rules to write better contracts