Payment terms are the agreed rules that govern when and how payment is made under a contract, whether between client and main contractor, main contractor and subcontractor, or contractor and supplier. They set out how often payment is assessed, when it becomes due and how long the payer has to make it.
On UK construction contracts, payment terms must comply with the Housing Grants, Construction and Regeneration Act 1996 (as amended), which requires an adequate mechanism for working out what is due, a due date and a final date for payment, and the use of payment notices and pay less notices. Pay when paid clauses are generally ineffective, except where the payer’s own client is insolvent. Payment terms typically cover:
- the interval for applications and valuations, usually monthly
- the due date and the final date for payment
- retention and when it is released
- any discount offered for prompt payment
Related terms: payment notice, pay less notice, interim payment, retention.
