Contract language to help you get paid on time
By Elliot Rozenberg
Late payment rarely starts as a legal problem. It starts as an awkward email. A polite follow-up. A second reminder. Then silence. And suddenly you’re spending more time chasing money than doing the work you were hired to do.
The unfortunate reality is that once someone has decided not to pay you, there’s very little you can do at that moment to force the issue. Real leverage is created weeks (or months, or years) earlier, when you first sign the contract.
Fortunately, a few practical clauses and small details, included upfront, can make a significant difference to whether you get paid on time. And if things do go wrong, they make it far easier, faster and more affordable to enforce your rights.
Remember, every situation will have a different set of facts and circumstances. While the following is general advice, please reach out to an attorney for legal advice on specific situations.
Step 1: Get the right details
This is simple, and often overlooked. Your contract should clearly record:
The full legal name of the party you’re contracting with
Their entity type (limited liability company, corporation, individual, etc.)
Their State of registration (if in the U.S.)
Their official business address
An email address where legal notices can be sent
These details matter more than you may think. If you ever need to send a formal notice, instruct lawyers, or pursue legal action, you must know exactly who the other party is and where they are located.
Step 2: Make sure your procedural clauses are working for you
Procedural clauses provide an essential foundation for how the legal process will be handled in the event that there is a dispute, including disputes around late or non-payments. Ensure that these clauses make it easy and affordable for you to proceed with any demand or legal action.
The notice provision
The notice clause sets out how legal notices must be delivered. If your contract doesn’t clearly state that notices can be sent to both a physical address and an email address listed in the agreement, you could be forced to send out legal notices via expensive, slow delivery methods instead of by email. In addition, if you are required to send mail to an official address, but do not have the physical address, you might not be able to send formal legal notices easily, or at all.
Arbitration vs court
Your contract should also decide upfront whether disputes go to private arbitration or the court system.
This choice often affects the:
cost of having the dispute heard;
speed in which a decision is reached;
confidentiality of the dispute; and
practicality of enforcing payment
Venue
The venue clause dictates where a dispute will be heard, the physical location of the court or arbitration.
This clause is usually tucked away towards the end of the contract, but it has real consequences. Agreeing to an international venue (or even one out of your state) can make enforcing payment significantly more complicated and expensive, could require travel for court or arbitration appearances, and could provide a “home court advantage” to the other party.
Third party beneficiary
Generally speaking, only the parties to a contract are able to sue each other for breach of contract. However, the insertion of the “third party beneficiary” clause can allow a person or company that is not a direct party to the agreement to enforce it and sue for damages related to late or non-payment.
This clause may not matter in many agreements, but is incredibly useful if you are an agency, manager or representative involved in the relationship but not formally listed as a party to the contract. Without this clause, you may have no legal standing to enforce the agreement if payment issues arise.
Step 3: Include clauses that give you real leverage
If someone is late on payment or hasn’t paid at all, one of the best things you can do is have contract clauses at your disposal that create increasing pressure for them to pay quickly. Here are some ways you can do that:
Interest and collection costs
This is one of the most effective clauses you can have. In the event of late or non-payment, it can allow you to claim:
Interest
Attorneys’ fees
Collection costs
Court or arbitration costs
These costs can add up over time and often cause a multiplier effect on the amount that a late or non-payer owes you. With it, we are able to let the other party know that the longer they take to pay, the more it will cost them. This is often enough to prompt action (if they know what’s good for them).
Injunctive relief (especially for creatives and agencies)
If you produce work that the client wants to use (designs, content, videos, photographs, strategy, copy, plans), then this clause can be very useful from a leverage perspective. Injunctive relief allows you to request that a court stop the client from using your work while payment is outstanding.
In some cases, that is far more motivating than a future financial damages claim, especially if your services relate to a larger project for the client like something related to a movie, TV show, architecture project, large campaign, big event, or other costly production.
A guarantor clause
This one may be harder to negotiate, but can be extremely powerful. A guarantor clause adds a second party (often a director, founder or related company) who is also personally responsible if the main company doesn’t pay.
This gives you a second route to recover money, and payment is often taken far more seriously when personal liability is involved
This approach is especially useful when:
the contract value is high;
you can’t get money upfront; or
there are early red flags with respect to financial viability.
Payment upfront
Speaking of getting money upfront, the best way to deal with late payment is to prevent it entirely. Upfront payments, deposits or staged payments tied to milestones dramatically reduce your risk of being paid late, or not at all. If a client resists this strongly, that resistance can be an indicator of potential problems to come in the future. Push for payments upfront when you can.
Leverage is created at the start
Remember that your leverage with respect to late payments or non-payments is created at the beginning of the contracting process, not once a payment is late. A few thoughtful provisions, added at the beginning of the contractual relationship through your own contract template or via skilled negotiating, can be the difference between a frustrating, costly chase for payment and a swift, straightforward recovery.
Want to review whether your current contracts protect you? Connect with Elliot.
