This contract tip is about the basics of drafting payment terms.
Almost all businesses need an invoice to make a vendor payment. The problem is that many contracts don't properly address that requirement.
Typical contracts say: “Buyer will pay Seller X within 30 days of the Effective Date.” Or “Buyer will pay Seller X per widget within 30 days of delivery.” These contracts later say, “Seller will send Buyer invoices at [email address].”
Notice that the triggering event (here Effective Date or delivery) is a condition for payment, but the invoice submission is not.
Every commercial contract should include two conditions for payment: receipt of Seller’s invoice AND the triggering event. So “Buyer will pay Seller the price within 30 days after the later of Buyer’s receipt of the invoice or Seller’s delivery of the widget.” Or “Seller will invoice Buyer no earlier than the delivery of the widget. Buyer will pay the invoice within 30 days.”
Make sure the Buyer's obligation to pay does not kick in unless it has an invoice AND the event has occurred.
It is in their best interest to make sure payment terms are clear and reflect actual business practices.
Do you ever see this provision missing the requirement elements?
