Deposits, milestones and payment terms

You have finished the work, sent the invoice, and the client has gone quiet. Most payment problems are settled before the project starts, by what you agreed about advances, milestones and due dates, and Indian law gives micro and small enterprises extra help with business clients.

When to ask for an advance (almost always)

Ask every new client for an advance. It confirms they have the budget, and a cancelled project does not leave you with nothing.

For a first project under about ₹1 lakh, 50% upfront is normal. Above that, 25% to 40% is easier to agree, with the rest spread over milestones. For a long-standing client who pays on time, you can relax it or bill monthly in arrears.

Raise it in your proposal, not after the client has said yes:

Payment: 40% advance to reserve the dates and begin, 30% on approval of the designs, and 30% on final delivery. Invoices are due within 15 days. Work starts once the advance is received.

Write it as an advance, not a "non-refundable deposit"

Many templates call the first payment a non-refundable deposit. In India that wording may not protect you. If a client cancels early and disputes it, section 74 of the Indian Contract Act lets a court award reasonable compensation up to the named figure, not the figure itself. The Supreme Court has allowed a reasonable earnest amount to be kept but has cut down large forfeitures, and where your whole fee is at stake, the line between the two is a fight you do not want.

Write it as an advance adjusted against the final invoice, and deal with cancellation in a separate kill-fee clause. That is clearer for the client and easier to defend.

The Client will pay an advance of {{40}}% of the total fee on signing. The advance is adjusted against the final invoice. If the Client cancels the project, the advance is first applied to work done up to the cancellation date and to the cancellation fee below; any balance for work not started is refunded within 15 days.

If the Client cancels without cause after work has started, a cancellation fee of {{20}}% of the unbilled fees is payable, reflecting time reserved and other work declined.

Splitting a project into milestones

Milestones keep you close to your last payment. A useful rule: never be more than two or three weeks of work away from money.

Tie each milestone to something the client approves, with an acceptance window, so the invoice is due on a date rather than on a feeling. The statement of work template has an acceptance clause you can use. Hand over source files, final exports or admin access with the last payment, not before.

Send a separate invoice per milestone and label it ("Invoice 2 of 3: design approval"). If you are registered for GST, each invoice needs the full GST details; the GST invoices playbook covers what goes on it.

Net 15, Net 30 and when to accept longer

"Net 30" means the invoice is due 30 days after the invoice date. Set your default at 15 days. Agencies and large companies often insist on 30 days or more because of their payment runs.

Accept Net 30 when the client has a record of paying on time and you have added the cost of waiting to your price. Push back on Net 45 or 60 unless you have the savings to carry it, and ask for a 25% advance even on Net 30 terms. A small discount for fast payment ("2% off if paid within 7 days") is a fair trade, one of the concessions in handling price pushback.

Late payment interest and pausing work

Put one in every contract, even if you never charge it.

Invoices are due within 15 days of the invoice date. Overdue amounts carry interest at 1.5% per month from the due date until payment, or at the rate under the MSMED Act, 2006 where that Act applies, whichever is higher. If any invoice is more than 15 days overdue, the Freelancer may pause work with written notice, and deadlines move by the length of the pause.

The pause right matters more than the interest. Use it calmly, in writing, before you are owed two months of work. Keep the contract rate moderate: section 74 of the Indian Contract Act allows a court to treat a higher rate charged from the date of default as a penalty and reduce it.

The clauses on this page are sample wording to adapt, not legal advice. For a large contract, have a lawyer check them once.

The MSMED Act 45-day rule, if you are Udyam-registered

India has a law aimed at exactly this problem, and most freelancers do not know they can use it.

Under the Micro, Small and Medium Enterprises Development Act, 2006 (the MSMED Act), a buyer who receives services from a micro or small enterprise must pay by the date agreed in writing, and that agreed period cannot be longer than 45 days from the day the buyer accepts the work. If there is no written agreement, the buyer must pay within 15 days of acceptance. A client is treated as having accepted the work if they do not object in writing within 15 days of delivery.

If the buyer pays late, they owe compound interest with monthly rests at three times the bank rate notified by the RBI, from the due date. The Act says this applies whatever the contract says, so a client's "Net 90" clause does not get them out of it.

To rely on this, you need to be a micro or small enterprise, which most freelancers are by turnover, and you should be registered on Udyam before you sign with the client. The Supreme Court said in Silpi Industries (2021) that the Act's benefits do not cover contracts made before registration; in 2025 it asked a larger bench to settle whether registration is needed to use the dispute route at all, so do not count on a late registration. Registration is free and online, and a sole proprietor providing services can register. The Udyam registration playbook walks through it. Put your Udyam number on your invoices and in your contract so the client's accounts team knows.

The rule protects you with clients in India. It does not help with foreign clients, because the Facilitation Council can act only against a buyer located in India.

Why section 43B(h) makes clients pay on time

Since the Finance Act, 2023, Indian income tax adds a second push. Under the rule on payments to micro and small enterprises (section 37(2)(g) of the Income-tax Act, 2025, which was section 43B(h) of the 1961 Act), if a business pays a micro or small enterprise later than the MSMED Act limit, it can deduct that expense only in the year it actually pays, not the year it was incurred. Unlike most items in that section, there is no grace period up to the return filing date.

For the client, an unpaid invoice from you on 31 March can mean a higher tax bill that year. That is why accounts teams have started asking suppliers whether they are MSME-registered. If they ask, answer with your Udyam number. It moves your invoices up the queue.

If an Indian client still does not pay

Send a polite reminder, then a firmer one that mentions your Udyam number and the interest due under the MSMED Act.

If not, a Udyam-registered micro or small enterprise can file a delayed payment application through MSME Samadhaan. New applications are now filed on the MSME ODR portal (odr.msme.gov.in). The case goes to the Micro and Small Enterprise Facilitation Council for your state, which first tries conciliation and then arbitration. The Act says each reference should be decided within 90 days. A buyer who wants a court to set aside the council's award must first deposit 75% of the amount. Keep your SOW, the delivery emails and the invoices; those are your evidence. The difficult clients playbook covers the conversation before you get to this point.

A complete payment terms clause

Put this in your MSA or at the end of your SOW and adjust the numbers.

1. Fees are in Indian rupees and exclusive of GST, which is added at the applicable rate where the Freelancer is registered. The Client may deduct TDS as required by law and will issue TDS certificates on time.
2. The Client pays an advance of {{40}}% on signing, adjusted against the final invoice. Further invoices are raised on acceptance of each milestone as set out in the SOW.
3. Invoices are due within {{15}} days of the invoice date, and in any case within 45 days of acceptance of the work.
4. The Freelancer is a {{micro / small}} enterprise registered under Udyam ({{UDYAM-XX-00-0000000}}). Payments are subject to sections 15 to 17 of the MSMED Act, 2006.
5. Overdue amounts carry interest at 1.5% per month or the MSMED Act rate, whichever is higher.
6. If an invoice is more than 15 days overdue, the Freelancer may pause work with written notice. Source files and final deliverables are released on full payment.

Handling "we don't pay advances"

Before you treat it as a red flag, find out why. A large company may genuinely be unable to pay before a purchase order; get the PO before you start and make the first milestone short, so the first invoice goes out within two weeks.

A founder who simply refuses any advance is a different case. Offer a small paid first phase, such as a ₹10,000 discovery and wireframe stage. If they refuse that too, you have learned what you needed to know before doing any work.