What does Net 30 mean in a contract?

Net 30 means payment is due within 30 days of the invoice date. Net 30 is the most common payment term in Indian B2B contracts. Net 60 gives the buyer 60 days. Net 90 is typically acceptable only for large enterprises. The clock starts on the invoice date unless the contract specifies otherwise (e.g., date of delivery, date of acceptance).

What is milestone-based payment in a contract?

Milestone-based payment links payment to delivery of specific project deliverables rather than calendar dates. Typical structure: 30% advance, 40% on mid-milestone, 30% on final delivery. It reduces risk for both parties — client only pays when work is done, freelancer/agency has guaranteed payments at each stage.

Contract Fundamentals

Payment Terms in Contracts India: Net 30, Milestones & Late Payment

Q: What is the 45-day MSME payment rule in India?

Under the Micro, Small and Medium Enterprises Development (MSMED) Act 2006, if a buyer enters into an agreement with an MSME supplier, payment must be made within 45 days of acceptance. If no written agreement exists, payment must be made within 15 days. Violation attracts compounded interest at 3x the RBI bank rate.

Q: Can I charge interest for late payment in India?

Yes. You can include a contractual interest clause for late payment. Typical rates: 18–24% per annum (1.5–2% per month). For MSME suppliers, interest is mandated by law at 3x the RBI bank rate (currently ~18.75%) even without a contract. Courts generally enforce reasonable contractual interest rates.

February 26, 2026•8 min read

Payment Terms in Contracts India: Net 30, Milestones & Late Payment

Poorly drafted payment terms are the #1 cause of cash flow crises for Indian SMBs and freelancers. Net 90 without interest, vague milestone definitions, and missing dispute resolution processes cost Indian businesses crores every year. This guide covers every payment term you need and how to protect yourself when clients delay payment.

Common Payment Structures in Indian Contracts

Structure	How It Works	Best For
Advance payment	Full or partial payment before delivery	Freelancers, new clients, custom goods
Net 30	Payment 30 days after invoice	B2B services, regular vendors
Net 60 / Net 90	60–90 days after invoice	Large enterprise buyers (negotiate hard)
Milestone-based	Payments tied to project deliverables	Projects, software development, construction
Monthly retainer	Fixed monthly fee in advance	Ongoing services, consultants
Delivery payment	Payment on physical delivery of goods	Product supply, FMCG distribution

The MSME 45-Day Mandatory Payment Rule

This is one of the most powerful and most ignored rules in Indian contract law:

MSMED Act Section 15 — Mandatory 45-Day Rule

If a buyer (any company, any size) enters a written agreement with an MSME supplier, payment must be made within 45 days of acceptance. If no written agreement exists, payment must be made within 15 days. Non-compliance attracts compounded interest at 3x the RBI bank rate (currently ~18.75% p.a.) — mandatory, not waivable by contract.

This also triggers mandatory disclosure in the buyer's annual financial statements. Large companies now face significant reputational risk from overdue MSME payments — use this as leverage in negotiations.

How to Draft a Strong Payment Clause

1. Define the Invoice Trigger Clearly

Does the payment clock start from: (a) invoice date, (b) date of delivery, (c) date of acceptance/sign-off? This single ambiguity creates months of disputed payment timelines. State: "Payment is due within 30 days of the date of Client's written acceptance of the deliverable or 45 days from invoice date, whichever is earlier."

2. Late Payment Interest

Include: "Any invoice not paid by the due date shall accrue interest at 18% per annum (1.5% per month), compounded monthly, from the due date until actual payment. This is without prejudice to any other right or remedy." 18% is generally enforced by Indian courts as reasonable commercial interest.

3. Disputed Invoice Process

Clients often withhold 100% of an invoice over a small dispute. Protect yourself: "In case of a bona fide dispute on any invoice, the Client shall pay the undisputed portion within the due date and notify the Supplier of the disputed portion in writing with reasons within 5 business days of invoice receipt."

4. Right to Suspend Services

The most enforceable payment tool: "If any undisputed invoice remains unpaid for more than 15 days after the due date, Supplier may (without liability) suspend services until payment is received, after providing 7 days' written notice."

5. Advance Payment Protection

For advance payments: specify it is non-refundable if the client cancels without cause, and specify what deductions the supplier can make from the advance if the project is cancelled by either party mid-stream.

6. Payment Method

State accepted payment methods: NEFT/RTGS/IMPS bank transfer only (account number in invoice), or UPI, or cheque (high risk — can bounce). For cross-border transactions: specify currency (USD/INR), SWIFT code, and who bears bank charges.

Special Situations: What to Watch For

⚠️ Conditional payment clauses: "Pay-when-paid" or "pay-if-paid" in construction contracts — partially enforceable in India but courts scrutinize them for fairness
⚠️ Set-off rights: Buyer deducting amounts from invoices for unrelated disputes — include an anti-set-off clause: "No deductions or set-offs from invoices without prior written agreement"
⚠️ Retentions: Construction contracts often hold back 5–10% of contract value — define retention release conditions (defect liability period, final certificate)

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Frequently Asked Questions

What is the 45-day MSME payment rule in India?

Under the MSMED Act 2006, buyers must pay MSME suppliers within 45 days of acceptance (or 15 days if no written agreement). Violation attracts mandatory interest at 3x the RBI bank rate, currently around 18.75% p.a.

Can I charge interest for late payment in India?

Yes. Include a contractual interest clause — 18% per annum (1.5% per month) is commonly enforced by Indian courts. For MSME suppliers, interest is mandated by law at 3x the RBI bank rate even without a contract.

Can a seller withhold goods for non-payment in India?

Yes. Under Section 47 of the Sale of Goods Act 1930, an unpaid seller has the right to retain possession of goods until payment. These statutory rights can be modified in the contract.