Introduction

The work to be done and the price to be paid are often the subjects of much negotiation in the SOW. However, the terms relating to scope and payment are relatively simple. You’ll typically have less to negotiate here. Note that some of these provisions may appear in the statement of work. So, keep an eye on both the contract and the SOW to make sure you cover everything.

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Invoices

Clients often have detailed provisions specifying how they must be invoiced. The following is a typical clause:

<aside> 📑 Invoices. Agency shall not invoice Client until Client’s final acceptance of Agency’s work. Agency will ensure that all invoices include the applicable PO number and be sent to the PO “Invoice To” address. Payments shall be made in U.S. Dollars, or the applicable local currency as set forth in the SOW, within 30 days of receipt of an undisputed invoice

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In negotiating these provisions, Agency’s primary goal is to get paid. To do so, keep the following tips in mind:

Payment Terms

There probably isn’t a simpler provision that causes more business problems for an Agency than the payment terms provision. A typical payment provision reads like this:

<aside> 📑 Payment terms are net 60 days of receipt of invoice for undisputed amounts.

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Before we talk about negotiating this clause, let’s make sure we know what it means.

The above clause means the Client has 60 days to pay Agency’s invoice. And by extension, payment isn’t considered late until those 60 days have elapsed.

You’ll often see the word “net” before the time for payment (in this case, “net 60 days”). The word “net” is an old way of saying “the total amount due.” It makes more sense when seen its original context which would have been something like “2/10, net 30”. This phrasing means that the Client may take a 2% discount for payments made in the first 10 days with the balance, or net amount due, no later than 30 days from the invoice date. I’ve never seen the discount portion of this clause (e.g., “2/10”) in a Service Agreement (more common in contracts for sales of goods).

An important thing to keep in mind is that anytime you waiting to be paid, you are essentially acting as a bank: you are financing your client – making them a loan. Think of all the hoops your bank makes you jump through for a loan and you’ll approach the payment terms clause with a more business minded eye: