How to review a payment terms clause

The payment terms clause decides when money moves, what happens if it does not and how either side can push back on an invoice. It is often negotiated last and read least, which is why so many disputes start here. This guide covers how to read a payment clause, the US rules that touch it, and how to review it in Word with LexDraft.

Last checked: 18 October 2026. The law changes; check the current position before relying on this page.

Background rules

• Sales of goods. Unless the parties agree otherwise, UCC section 2-310 makes payment due at the time and place at which the buyer is to receive the goods. Most commercial contracts replace this with express invoice and payment terms.
• Federal government customers. The Prompt Payment Act (31 U.S.C. chapter 39) generally requires federal agencies to pay proper invoices within 30 days unless the contract says otherwise, with interest owed on late payments. State and local governments have their own rules.
• Late fees and interest. State usury laws and the rules against penalties can limit late payment interest and fees. Check the law of the state named in the governing law clause before agreeing a rate.
• Pay-when-paid and pay-if-paid. In construction subcontracts, some states restrict or narrowly read clauses that make payment depend on the contractor being paid first. Check the state rule before relying on one.

Clause checklist

• Fees and currency. Is the price fixed, usage-based or time and materials? Is the currency stated?
• Invoicing. When invoices are issued (in advance, in arrears, on milestones or on acceptance), what they must contain and where they go.
• Payment period. Net 30, net 45 or net 60, and whether the clock starts on the invoice date or on receipt.
• Disputed invoices. A procedure to dispute an invoice in good faith within a set period, while paying the undisputed part.
• Late payment. The interest rate, when it starts and whether it is capped at the maximum lawful rate.
• Suspension. Can the supplier suspend services for non-payment? Check for a written notice and a grace period first.
• Set-off. Whether the customer can deduct amounts the supplier owes it, such as service credits.
• Taxes. Who bears sales and use taxes, and how withholding taxes on cross-border payments are handled.
• Price increases. Caps on increases at renewal, notice periods and any index used.
• Expenses. Whether expenses need prior approval and receipts, and whether they are capped.
• Refunds. What happens to prepaid fees if the contract ends early. See our termination clause guide.

A payment terms clause review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. Run the review on the whole agreement. For NDAs, SaaS MSAs, DPAs and services agreements, run the matching playbook on the whole agreement; for other contracts LexDraft runs a general AI review against the governing law you chose. LexDraft has no separate clause-only playbook. The SaaS MSA and Services playbooks review fees and payment terms as part of those agreements.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

Common mistakes

• Payment tied to "acceptance" with no acceptance procedure or deadline, so the invoice clock never starts.
• An order form that says net 45 while the master agreement says net 30, with no order of precedence clause.
• "Fees" defined in the MSA but "Charges" used in the order form. The defined-term check catches this.

What LexDraft does not do

LexDraft does not give legal or tax advice or decide whether a late payment rate is lawful. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.