Payment Terms Clause For Your Terms and Conditions

Generate a Free Terms & Conditions

With 60% of companies moving all of their payments to the digital sphere, there are more ways than ever for customers to make payments — and more ways than ever for customers to avoid payments.

If you’re too lenient about payment, your business will quickly fall into financial trouble. Setting payment terms in your terms and conditions can help maintain healthy customer relationships and steady cash flow.

In this article, we’ll go over what payment terms are and why they’re an indispensable part of your terms and conditions agreement.

Table of Contents
  1. Brief Overview of Terms and Conditions
  2. What Are Payment Terms?
  3. Why You Need Payment Terms
  4. How To Determine Payment Terms
  5. Examples of Payment Terms
  6. Best Practices for Adding a Payment Terms Clause to Your Terms and Conditions
  7. Summary

Brief Overview of Terms and Conditions

A terms and conditions agreement is a set of rules between your business and your users. It defines what users can, must, and cannot do when using your website or app.

It also explain any conditions that users must consent to before they are granted access to your website or app.

Your terms and conditions are not legally binding but are a contract directly enforced by your business. You can enforce these terms in different ways.

For example, you can implement penalties for prohibited activity, such as restricted access, suspension, or fees. Furthermore, you can take legal action against people who violate your terms and conditions.

If your business includes any paid products or services, you’ll need to include your payment terms within your terms and conditions agreement.

What Are Payment Terms?

Payment terms provide the parameters for any online payments to your business. They set out accepted forms of electronic payment, payment dates, cancellation rules, and late payment penalties.

With clear terms set for online payment, you can avoid or minimize late payments and any problematic cashflow issues.

Clear payment terms also help to maintain positive relationships with customers because they’ll know what to expect from the beginning.

Types of Payment Terms

The different types of payment terms include:

  • Payment of subscriptions and fees: Your business may offer a monthly or annual subscription, providing continuous service for a regularly paid fee. This type of payment term outlines the length of the billing cycle and the accepted payment methods for your products or services.
  • Payment of taxes: A notice that invoices or receipts may include a charge for sales tax based on state or regional laws.
  • Cancellation terms: If the customer needs to cancel an order or a subscription, the cancellation terms lay out how to do that and whether or not there will be any cancellation fees or refunds.
  • Returns: Your return policy can also be a type of payment term. It defines whether or not returns are allowed and if returns constitute a refund or a replacement order.
  • Currency and authorized payments: What currency is allowed, and what type of payments are allowed? For instance, some online store hosts allow third-party payments like PayPal. Some may allow credit or debit card payments with a fee, while others may require an electronic check.
  • Late payments: Late payment terms explain what happens if payment isn’t received in a timely fashion. You might send a warning or suspend service until payment is resumed. There may also be late fees attached.

Why You Need Payment Terms

If payment transactions are a part of your website or app, you need payment terms because they provide three key benefits:

Maximum legal protection

When you don’t have payment terms, default payment rules contained in applicable law will apply to the payment. These default rules may not be that favorable to you and you may end up with less protection that you can enjoy.

However, drafting custom payment terms within the limits of applicable law can enable you to enjoy maximum degree of legal protection allowed under the law.

Minimizing legal risks

Payment terms can also protect you from legal disputes or customer demands for refunds who did not thoroughly review the terms and conditions before agreeing to them. You’ll be able to point to your express terms and the customer’s agreement with them, thus proving that you are not at fault.

Earning customer trust with transparency

Any business needs to ensure there is no confusion regarding payment. Customers should know what to pay, how, and when.

For example, if your website or app uses autopay for subscription services, customers will want to know when to expect the payment to come out and how much that payment will be.

As with everything else in business, transparency is vital.

Adding payment terms to your terms and conditions ensures that everything about payment is self-explanatory and there’s no aspect of payment left ambiguous.

Your terms and conditions should lay out everything users need to know about the relationship between business and customer before engaging with your website.

How To Determine Payment Terms

To determine your payment terms, take a look at your business model and ask:

  • Do you have an online shop or offer a service for a subscription cost?
  • Do you ship items, or are all of your products and services digital?
  • Do you have international customers, or is your customer base domestic?

To break this process down further, ask yourself these six additional questions:

  • WHO is paying you for products and services?
  • WHAT amount should they pay?
  • WHEN will that payment be due? Upon purchase? After a particular billing cycle?
  • WHERE are your customers located, and what currency will be accepted? Do you have a way to convert currency? Where will the products go after payment?
  • WHY are they making this purchase? What is the product or service?
  • HOW will they pay? What are your authorized payment methods?

From there, you can begin to draft your payment terms.

You should look at any legal regulations where you operate or where your customers might be located. You can also look at terms and conditions from similar websites to serve as an example for your payment terms.

Examples of Payment Terms

If you’re still drafting your payment terms for your terms and conditions, it may be helpful to look at payment term examples that already exist. Even if these don’t completely fit your business model, they can serve as a good starting point.

Below we have listed the most common payment terms you may want to add to your terms and conditions agreement.

When Payments Are Due, Subscriptions, and Invoicing

Payment due dates

The first thing customers will want to know is when payments are due once they see the price for a product or service.

If you have an online shop, payments might be due upon purchase; in other cases, you might not take the payment out until the product ships.

Subscription services

Subscription services typically have a monthly or annual billing cycle. The annual billing cycle tends to cost less in the long run than the 12 months of the monthly billing cycle, but the monthly billing cycle breaks it down into smaller payments.

By offering both options in your payment terms, you can meet the preferences and budgets of various types of customers.

Both types of billing cycles are often handled by autopay using the payment method that the customer indicates on their profile, which they should be able to change at will. Once the automatic payment comes out, a receipt is usually emailed to them, letting them know the payment has been made.


If your business has an invoicing model, your payment terms should also include what to expect for invoicing.

When does the invoice come out? Once the invoice is sent, how long does the customer have to pay the invoice?

This should all be clear in your payment terms section of your terms and conditions.

What Payment Methods You Accept

Next, your payment terms should explain what your acceptable payment methods are.

Many online stores accept credit and debit cards as their primary form of payment. In addition, you may offer a store credit card to qualifying customers, allowing them to make manageable monthly payments rather than paying upon purchase.

However, you may charge processing fees for credit or debit cards, which you should also outline in your payment terms. Businesses who do this typically offer the option to pay through an electronic check instead to forego processing fees.

You may also add a widget that allows customers to pay through services like PayPal.

What Currencies You Accept

Currency is another issue that arises when the question of acceptable payment methods comes up.

Some web hosts, like Shopify, will automatically convert currency based on the customer’s country of origin. WordPress also has a currency converter.

If this isn’t an option for you, you’ll need to decide what currencies you can accept.

Many businesses that ship goods will limit their customer base to specific countries when just starting out to avoid shipping costs. In these cases, you will likely only accept one type of currency.

Incentives and Offers for Customers (or Potential Customers)

Incentives and offers can be part of your terms and conditions, but make sure to be clear about limitations. For example, be sure to include if there’s an expiration date.

Store or rewards cards for qualifying customers may be included in payment terms, with an explanation of how to apply and what kind of customers are eligible.

What Happens If Payments Are Missed or Not Received?

Even with autopay, sometimes payments get missed. Sometimes the payment method will be expired or won’t have sufficient funds.

Often, this is an easy fix for customers. Though in some cases, it could take days.

The main penalty for late payments in the digital world is a service suspension until payment goes through. Some companies will offer a warning, giving customers a grace period of a few days to make the payment.

But the suspension of service isn’t the only possible penalty for late payments.

You may save that as a last resort and implement late payment fees after a certain period instead.

No customer likes to suffer penalties for late payments, and no business wants to implement them; but it’s essential to have clear and firm rules for all potential occurrences, even those that are less than ideal.

Best Practices for Adding a Payment Terms Clause to Your Terms and Conditions

Knowing what to include in your terms and conditions is one thing. However, knowing how to define those payment terms is another — and often more complex — art form.

Below are some best practices to keep in mind for adding payment terms to your terms and conditions.

Consider the mandatory legal rules

Depending on the location of your customers, the payment transaction may be subject to mandatory legal requirements. For example, consumer laws across the world may restrict your freedom to set payment terms to some extent. Therefore, you must always take into account legal restrictions when drafting payment terms.

Use Succinct Language

The more concise your wording, the clearer it will be to readers. Give customers all the information they need, but don’t couch it in flowery language.

Not only will this make your payment terms harder to understand, but customers may also look at long blocks of text and decide not to bother reading it all.

If you use straightforward language, customers are more likely to read thoroughly and understand your payment terms clearly.

Be Polite

There’s no need to be aggressive with your payment terms. You are laying down the law but can do so in a polite and understanding tone.

Use kind language that doesn’t put customers on the defensive but still informs them of your payment expectations.

Assume your customers intend to abide by these payment terms, even if unexpected issues might occur.

Set Specific Deadlines

When it comes to money, every term should be specific, so there’s no room for misunderstanding. This practice is essential for payment deadlines.

Your payment terms should be explicit regarding the billing cycle’s length, the expected time to pay after an invoice is sent, and the time before any late fees will be incurred.

Make Payment Periods Shorter

If payment periods are too long, your customers may forget about them before the due date. Even if they don’t, extended payment periods mean a longer wait before you get paid for your work. On the other hand, shorter pay periods can keep the cash flowing and customers on track.

Be Sure To Include Late Fees and Enforce Them

Late fees are a great way to deter late payments. No one wants to pay more than they need to, so when there are late fees, customers will be more likely to pay on time.

Send reminders when a payment is late, reminding the customer of the potential late fee. And make sure you don’t just threaten late fees but actually enforce them.

Offer Your Customers Flexible Payment Methods

Your customers should have a wide range of ways to pay you. Credit and debit cards, PayPal, electronic checks, whatever you’re able to facilitate should be made available to your customers.

In some cases, you may even be able to offer a payment plan, such as a “pay in four” option, instead of paying the total cost upfront.

Reward the Customers Who Pay Early

If your customers have an excellent track record or even pay early, reward them!

You could offer them a discount or a rewards card or let them build up points with your store for early payments.

Those points could eventually convert to store credit, which means you’ll have more timely payments, and loyal customers will have more opportunities to shop with you.

Customers who are rewarded for good behavior are also likely to stay loyal.


When you open a business, you want to get paid and maintain good relationships with your customers. Though setting down firm payment terms may seem intimidating, it can boost relationships with your customers.

Make your payment expectations clear in your terms and conditions — and reward customers who go above and beyond — and you’ll have the best of both worlds.

Ali Talip Pınarbaşı, CIPP/E, & LLM
More about the author

Written by Ali Talip Pınarbaşı, CIPP/E, & LLM

Ali is a London-based Data Privacy Law Consultant with a Master of Laws Degree in EU Privacy law at King's College London. He has three years of experience in advising businesses on how to comply data protection laws. More about the author

Related Articles

Explore more resources