Contracts and Payment Structures
Assignment Overview
For this Case Assignment, write a 3-page paper (excluding title and references pages). Include three scholarly sources. Discuss the six payment structures below and answer the assignment questions:
Timing
- Many customers prefer to pay upon completion and acceptance of all work. Ideally, the delivery organization would prefer to be paid in advance to avoid having to finance negative cash flows. The reality is that the parties usually negotiate something that is fair and reasonable to both sides.
- Most customers are accustomed to paying within 30 days of an invoice.
- Be aware that some customers stipulate that payments be tied not to receipt of the invoice but rather to their acceptance of the invoice. This can extend the final receipt of payment for several weeks or months.
Payment Schedule
- If customers cannot pay the lump sum at one time, you may offer a schedule for payment. You may specify how many bills the customer will receive and what the rates (usually higher) are under this plan.
Invoicing Process
- You may want to specify when the customers will receive the invoices and how many they will receive in total.
Substantiating Documents
- Make sure the method of payment defines the substantiating documentation required to accompany each claim for payment.
- Where possible, the delivery organization should propose that such substantiation will be maintained within its organization and made available for inspection by authorized customer representatives should the need arise. Attaching the actual support documents to an invoice can be extremely time-consuming and can result in delays in invoicing customers.
Holdbacks
- If there are holdbacks applicable, understand when and how they will be paid. It may be desirable and reasonable, for example, to suggest that accumulated holdbacks be liquidated on completion of major milestones for long-term contracts.
Interest Charges
- The method of payment should define when interest on outstanding payments will be payable and the rate at which interest is to be calculated.
Assignment Questions:
- Discuss each Payment Term individually and provide information as to why these terms are needed in contracts.
- For each Payment Term and Condition above (Timing, Payment Schedule, Invoicing Process, Substantiating Documents, Holdbacks, and Interest Charges), how does each impact or improve the Contract?
- Is a Payment Terms and Condition Section needed for all contracts? Why or why not? Provide examples and support your work.
Case Study Assignment Expectations
- The minimum length requirement for this Module Case Assignment is 3 full pages (excluding Title and Reference pages). Include 3 scholarly sources.
- Provide an APA-formatted title page. Use APA 7th Assignment Template
- Include an introduction, a body using 3 scholarly sources cited to support your work, and a conclusion that aligns with your purpose statement, summarizes each section, and then wraps up into a final thought.
