Payment terms in a settlement agreement

Settlement payment terms should show how and when money will actually move. Preparing for commercial settlement includes considering whether the proposed arrangement can be performed, rather than focusing only on the headline amount. ^[1]

Specify the payment mechanics State the currency, amount, due date and recipient. Clarify whether interest, costs and any tax-related treatment are included or require separate handling. Verify bank details through an independently established channel before transferring funds.

For instalments, set out each payment date and the balance after payment. Decide how weekends, bank holidays and transfer delays are treated instead of relying on different assumptions about 'within a month'.

Address delayed or incomplete payment Discuss notice requirements, any opportunity to remedy default and the consequences of a missed instalment. Security, guarantees and accelerated payment clauses require tailored drafting; their effectiveness should not be assumed.

Check when the release of claims takes effect relative to cleared payment. Assign someone to monitor receipts under the implementation plan. A signed agreement is useful only if missed performance is identified and handled through its actual terms.

Reconcile the amount before creating a timetable Prepare a calculation showing how the agreed sum relates to the dispute. Distinguish principal, interest, costs and any separately addressed item so both sides understand what is included. If a figure is provisional or depends on a later calculation, identify the method and information required. Ask the adviser about tax or invoicing questions relevant to the arrangement, rather than assuming the settlement label determines the treatment. A clear financial schedule reduces the risk that different teams implement different understandings of the same headline amount.

Check the intended payer and recipient. Where several companies or an insurer are involved, identify whose obligation is being discharged and whether payment by another person is contemplated. Ask how the arrangement should be documented and what evidence the receiving party will require. A payment from a connected entity should not be treated as self-explanatory. It may need to be linked clearly to the settlement so the recipient can allocate it correctly and the parties can establish which obligation has been performed.

Specify how the payment obligation will be measured Identify the relevant currency, dates and agreed method, with advice on any wording that distinguishes initiating a transfer from receipt. Consider practical issues such as bank processing, intermediary charges or a recipient account held in another country. Do not assume the parties share the same understanding of when payment counts as complete. The appropriate drafting depends on the intended allocation of those risks. Check that the timetable gives the paying team a realistic opportunity to perform the obligation as expressed.

For instalments, prepare a schedule that can be checked line by line. Show each amount and due date, and verify that the total matches the bargain. Identify how any adjustment, interest or permitted early payment is treated. If dates depend on another event, specify how that event will be evidenced. A simple calendar can support monitoring, but the contract must establish the obligation. Avoid informal side arrangements that leave the finance team following a timetable different from the one accepted by the parties.

Verify instructions and performance through controlled records Confirm payment details through a trusted channel established independently of an unexpected request to change them. Keep the verification appropriate to the transaction and record who completed it. Limit circulation of full banking information to people who need it. If a change arrives late, pause long enough to authenticate it rather than treating urgency as proof that the instruction is genuine. The settlement deadline and the need for reliable payment instructions should be managed together through the authorised contacts.

Agree who will confirm receipt and how any discrepancy will be reported. A bank instruction, a debit entry and cleared receipt describe different points in the process. Keep the evidence relevant to the agreed obligation and reconcile it against the schedule. CEDR's settlement preparation guidance supports considering whether a proposed bargain can be delivered; the payment controls here should be adapted to the parties and transaction. They are practical safeguards, not a guarantee against every transfer problem or a substitute for legal review of the terms. ^[1]

Understand default consequences before relying on them Ask the adviser to explain what happens if an instalment is late, incomplete or disputed. Identify any notice, cure period, acceleration, interest or security provision and the conditions for using it. Do not assume that a missed payment automatically revives the original claim or makes every future instalment immediately due. A guarantee or security arrangement may require separate documents and approvals. Assess the proposed protection before signature, including whether it is practically useful for the risk being addressed.

Link the payment schedule to any release and other settlement obligations. Explain whether a release takes effect at signature, on receipt or at another defined stage, and check what remains enforceable afterwards. Assign someone to monitor due dates and escalate a problem promptly using the agreement's actual requirements. Preserve communications about delay without casually agreeing a variation beyond authority. A disciplined receipt record allows the business to respond to real non-performance with a clear account of what was due, what arrived and what remains outstanding.