Section Four - Payment Terms and Structures
Welcome to Section Four of the contract customization process! This section deals with payment terms and structures—arguably one of the most significant aspects of any contract. Payment terms often form the crux of disputes, so it’s essential to get them right. Here’s a comprehensive guide to help you navigate through Section Four effectively.
table of contents
Choosing Your Payment Structure
Invoice and Payment Due Dates
Handling Additional Costs
Setting Up a Payment Plan
Managing Late Payments
Reimbursements and Additional Expenses
In this section, we focus on how you will structure payments for the services you provide. We have designed this section to be flexible and customizable, ensuring that the payment provisions you set up are legally binding and clear to both parties. This ensures that any potential issues or disputes around payments are minimized from the outset.
Choosing Your Payment Structure
The first step is to decide how you will structure your payments. This section allows you to specify whether your client will pay based on:
Hourly rate
Completion of # of hours spent
Include the hourly rate
Include the productivity task that is being purchased
Include the amount of time purchased
Purchase of a specific package
Invoice and Payment Due Dates
Here is where you will specify when and how invoices will be issued to prevent confusion and disputes.
Example: Invoices will be sent on the first Monday of each month.
You will also specify here how many days the client has to pay the invoice.
Example: The client shall remit payment within 2 days.
You will then list out the total cost of the services and the method of payment
Example: $10,000, credit card
Handling Additional Costs
If any additional costs and/or expenses might arise during the course of the project, and you will be having the client handle those costs, select “Yes” here.
Setting Up a Payment Plan
Initial Payments and Legal Considerations - It’s often better to avoid requiring large upfront payments unless absolutely necessary. Instead, distribute payments throughout the project.
Initial Payment: Typically a smaller percentage of the total fee to start the project.
Breaking Down Payments - Divide the total cost into manageable parts to ensure fair compensation and reduce disputes.
Example: A $5,000 project may have four payments of $1,250 each.
Include the payment due dates for each of these payments.
Managing Late Payments
If you will be late fees or “stop work” fees, this is where you will add those in.
For late fees, include how many days leeway you will provide before the payment becomes late and warrants a fee.
For stop work fees, state conditions under which work will be stopped if payments are not made, and specify when work will cease due to non-payment.
Example: Services will be paused if payment is not received within 30 days, with work resuming only after payment is made.
Reimbursements and Additional Expenses
If you have to make purchases on behalf of the client, such as software, licenses, etc. this is where you will select “Yes” and include the proper provision that protects you to receive reimbursements.
Review each part of Section Four carefully to ensure it accurately reflects your business practices and protects your financial interests. This will help create a clear and enforceable agreement tailored to your specific needs.