One of the key terms of a contract includes the payment rates and schedules. However, no matter how thoroughly parties negotiate payment, disputes can still arise, especially as the project scope changes or a contractor must put in more work than initially expected.
Understanding Payment Schedules
A payment schedule is an agreement or a contract section outlining the terms by which a customer/client will pay for goods or services. Agreements such as purchase/sale agreements, construction contracts, independent contractor agreements, and invoices can incorporate payment schedules. Parties typically use payment schedules when a customer cannot afford to pay the full contract price at once or when a customer wants to spread out payments to monitor performance, such as during a construction contract.
Common types of payment schedules include:
- Milestone-based payments: Construction, freelancing, or other long-term contracts may use a milestone-based payment schedule. This schedule breaks up a project into milestones, with the customer making payment after a contractor satisfactorily completes a milestone.
- Installment plans: An installment payment schedule breaks up a contract price into multiple payments, which occur on a regular schedule, such as weekly, monthly, or quarterly, or on another schedule agreed upon by the parties. Installment plans usually apply to large purchases a customer cannot afford in one payment.
- Flat-fee agreements: For smaller projects, parties may agree to a flat-fee payment that covers all the contractor’s work for the project.
- Hourly rate agreements: In long-term agreements, parties may agree to an hourly rate for a contractor’s work, with the contractor billing the client on a regular basis, such as weekly, biweekly, or monthly, for the work performed in that period.
- Retainer agreements: Parties who agree to an hourly rate payment schedule may also enter a retainer agreement in which the client pays money up front, under which the contractor can deduct their hourly fees as they perform work. Retainer agreements frequently appear in professional services contracts, such as in the consultancy, legal, and accounting industries.
Determining Fair Payment Rates
Some of the factors that may determine payment schedules and rates under a goods or services contract include:
- Industry standards: Each industry has payment terms typically used by vendors.
- Market trends: Popular payment terms can evolve in response to market conditions or the development of new payment technologies.
- Contractor experience and reputation: Highly experienced, reputable contractors can negotiate more favorable payment terms due to the quality of their work and the reduced risk of inadequate performance.
- Scope of work and project complexity: Larger projects typically use payment terms that spread payment of the contract price over a long period.
- Urgency and deadlines: Deadlines for the project and the need for contractors to have payment to cover materials and labor can affect the payment terms.
Common Payment Disputes and How to Handle Them
Common examples of disputes that can arise over payment rates or terms include:
- Late or missed payments
- Disagreements over rates for additional work
- Scope of work issues
- Quality issues
- Chargebacks and refunds
When disputes do arise, businesses have options for handling and resolving such disputes, such as informal negotiation, mediation, arbitration, and litigation:
Best Practices for Avoiding Payment/Rate Disputes
Customers and contractors can address and avoid payment disputes through various strategies, including:
- Having thorough bookkeeping practices that prevent customers from missing payment deadlines
- Negotiating contracts that clearly define payment terms and how those terms can change
- Properly documenting change orders and obtaining all parties’ assent
- Adopting clear refund and chargeback policies
- Using escrow services or other secure payment platforms to manage the payment process
- Keeping open lines of communication when questions or disputes over payment arise
Contact a Manhattan Litigation Attorney Today
If you’ve found yourself in a legal dispute over payment rates or schedules under a contract, you need experienced legal counsel and advocacy to protect your interests. Contact Levy Goldenberg LLP today for an initial consultation with a Manhattan business litigation lawyer to discuss your options for pursuing a favorable resolution to your case.