Question

Payment terms should be:

Based on implementation schedule

Cost-based, not price-based

Determined after the contract is negotiated

Milestone-based

Answer 1

The correct option is “Milestone-based”.

Payment terms are usually time period required or given to the customer to pay the due amount.

Since payment terms is linked to the time for payment to be done, it should not be linked to “implementation schedule”, as the a project or delivery might be before or after the schedule, so linking it this way is not advisable as it might create cash flow issue.

Since payment terms are linked to the time for payment to be done, “Cost or Price” does not have any linkage to payment terms.

Payment terms cannot be determined after the contract is negotiated. It is part of the contract and cannot be discussed after contract negotiation.

Payment terms should be Milestone based. i.e. time period required to pay the due amount should be linked to the actual Milestone completed as against the schedule. This keeps a tab on the supplier to be on time & complete the actions required as per contract timelines.

Answer 2

Payment terms should be determined after the contract is negotiated. This allows both parties to discuss and agree on the terms of payment, including the amount, timing, and method of payment, based on the project requirements, scope, and risks. The payment terms may be influenced by the implementation schedule, cost, price, and milestones, but should be negotiated and agreed upon by both parties before finalizing the contract.