A payment terms clause format is standard wording for quotations, purchase orders, invoices and supply contracts that sets the credit period and due date, mode of payment, interest on late payment, how part payments are applied, the time limit for raising disputes, retention of ownership, and the jurisdiction or arbitration for disputes. For micro and small suppliers, the credit period must not exceed 45 days under Section 15 of the MSMED Act, and interest under Section 16 applies by law.
Payment terms clauses for contracts and quotations
Use the full set in supply agreements, quotations and the terms overleaf on purchase orders you accept. Delete what does not fit your business and keep the numbering.
PAYMENT TERMS 1. Invoicing. The Supplier will issue a tax invoice [on dispatch / on delivery / on completion of each milestone]. Each invoice will state its due date. 2. Credit period and due date. The Buyer shall pay each invoice in full within [CREDIT DAYS] days of [the invoice date / the date of delivery]. [If the Supplier is a micro or small enterprise: the credit period shall in no case exceed 45 days from the day of acceptance or deemed acceptance of the goods or services, as provided in Section 15 of the MSMED Act, 2006.] 3. Advance. [[X]% of the order value is payable with the purchase order. Work will begin on receipt of the advance.] 4. Mode of payment. Payment shall be made by NEFT/RTGS/UPI to the Supplier's bank account stated on the invoice. Payment by cheque is subject to realisation. The Supplier will never ask for payment to a different account by email alone; confirm any change by phone. 5. Interest on late payment. Any amount not paid by the due date shall carry interest at [RATE]% per annum from the due date until the date of payment. [Where the Supplier is a micro or small enterprise, interest shall be payable as provided in Section 16 of the MSMED Act, 2006, at three times the bank rate notified by the Reserve Bank of India, compounded monthly.] 6. Appropriation of payments. Unless the Buyer specifies otherwise in writing at the time of payment, the Supplier may apply any payment first to interest and then to the oldest outstanding invoice. 7. Deductions and set-off. The Buyer shall not withhold or set off any amount against an invoice except under a credit note issued by the Supplier or a claim accepted by the Supplier in writing. Tax deducted at source shall be supported by the TDS certificate. 8. Inspection and disputes. The Buyer shall inspect the goods within [NUMBER] days of delivery and notify any shortage, damage or defect in writing within that period, with details. Goods not so rejected shall be deemed accepted. A dispute about part of an invoice shall not delay payment of the undisputed part. 9. Retention of title. Ownership of the goods remains with the Supplier until the Supplier has received payment in full. Risk passes to the Buyer on delivery. 10. Suspension. If any invoice is overdue by more than [NUMBER] days, the Supplier may suspend further deliveries until all overdue amounts and interest are paid. 11. Statements and confirmations. The Supplier will send a monthly statement of account. The Buyer shall report any discrepancy within [NUMBER] days of receipt and shall sign and return a balance confirmation when requested. 12. Costs of recovery. The Buyer shall reimburse reasonable costs incurred by the Supplier in recovering overdue amounts, including legal notice and advocate fees. 13. Jurisdiction / Arbitration. [Courts at [CITY] alone shall have jurisdiction.] OR [Any dispute shall be referred to arbitration by a sole arbitrator under the Arbitration and Conciliation Act, 1996, seated at [CITY], in English.] This clause does not affect the rights of a micro or small Supplier under Section 18 of the MSMED Act.
Terms: Payment due within [CREDIT DAYS] days of the invoice date (due date: [DUE DATE]) by NEFT/RTGS to the account above. Interest at [RATE]% p.a. [or as per Section 16 of the MSMED Act, 2006; Udyam No. [UDYAM NO.]] is payable on amounts not paid by the due date. Shortages or defects must be reported in writing within [NUMBER] days of delivery. Goods remain our property until paid for in full. Subject to [CITY] jurisdiction.
How to fill it
- Choose a credit period you can live with, and state it in days from a date the buyer cannot argue about. For micro and small suppliers, keep it at or below 45 days.
- Set an interest rate that is commercial rather than punitive. A rate the court sees as a penalty may be reduced under Section 74 of the Indian Contract Act.
- Pick a short, realistic inspection window. It is the clause that most often defeats quality disputes raised after the due date.
- Choose jurisdiction or arbitration deliberately: courts at your city are usually cheaper for you. If you choose arbitration, read the arbitration clause entry first.
- Put the short version on every invoice and the full version in quotations and contracts, and make sure the buyer's PO does not override them.
Common mistakes
- 'Payment: immediate' or 'as per usual practice'. Neither fixes a due date.
- Terms printed only on the back of the invoice, never agreed. Courts give more weight to terms in the quotation, PO or contract the buyer accepted.
- An arbitration clause with no seat or no method of appointing the arbitrator, which leads to a separate court application before the claim even starts.
- Accepting the buyer's PO terms (often 90 or 120 days, pay-when-paid) without objection.
How good payment terms change recovery
Every recovery step leans on these terms. The legal notice demands payment 'as per the agreed terms'; the interest claim uses the agreed rate; the inspection clause answers the late complaint; the jurisdiction clause decides where you file. For micro and small suppliers, the MSMED Act adds statutory interest and the right to approach the Facilitation Council under Section 18 regardless of any arbitration clause. Calculate what a buyer owes on your terms with the late payment interest calculator, and see the interest on late payment invoice format to bill it.
FundRaksha, trusted by 1,000+ businesses, reviews your terms and documents at a free consultation and, if needed, sends a legal notice through FundRaksha Legal within 24 hours.
Last reviewed: 2026-10-20. Information for Indian businesses; not legal advice.