If you see the phrase "Pay-When-Paid" or "Pay-If-Paid" in a contract, you are looking at one of the most predatory terms in the freelance industry.
Essentially, the client is telling you: "If my customer goes bankrupt or refuses to pay me, I don't have to pay you either."
1. Why It's a Trap
As an independent contractor, you are a service provider, not a venture partner. You are not responsible for your client's business risks. If you do the work, you must be paid, regardless of whether your client’s end-customer is happy.
2. How to Spot It
These clauses are common in agency contracts and subcontracting agreements. Use our AI Contract Scanner to search for keywords like "contingent upon receipt of payment" or "pay-if-paid." Our engine will flag these as high-risk[cite: 2].
3. The Negotiation Script
Never accept this. Use this response:
"I cannot accept a pay-when-paid contingency. My services are rendered to [Client Name] directly, and payment is due based on our agreed milestones, independent of third-party actions."
If they insist, it’s a sign they have poor cash flow. Protect yourself by demanding a higher upfront deposit.
Frequently Asked Questions (FAQ)
Is 'Paid When Paid' legal?
In some jurisdictions (like several US states), "Pay-If-Paid" clauses are actually unenforceable or illegal for certain types of work. However, you don't want to rely on a courtroom to get your money. Delete it before signing.
What is the difference between 'Pay-When-Paid' and 'Pay-If-Paid'?
"Pay-When-Paid" usually refers to the timing of the payment, while "Pay-If-Paid" refers to the obligation to pay. Both are bad for your cash flow and should be flagged during your contract review.
Can I charge late fees on a Pay-When-Paid invoice?
It becomes very difficult, because the client will argue the payment isn't "due" yet. This is why you should always use a standard Net 15 or Net 30 due date on your invoices.