Your billing terms are one of the few sections of your Terms of Service that touch every customer interaction on an ongoing basis. They govern how you charge, when you charge, what happens when a customer doesn’t pay, and how costs change over time. Get them wrong and you’re chasing payments without contractual leverage, absorbing cost increases from your subprocessors, or fighting disputes over charges your terms don’t clearly support.
The most important principle: your billing terms need to match how your business actually charges customers. A template written for a flat subscription model won’t work if you’re billing based on usage. This sounds obvious, but it’s one of the most common sources of mismatch between what a SaaS company does and what its legal documents say.
Subscription Model
The subscription model is the most straightforward: the customer pays a fixed fee for access to the service, typically scoped by user count, feature tier, or both.
The core provisions you need: payment frequency and timing (invoiced in advance for the upcoming period), auto-renewal mechanics with advance notice required for non-renewal, how seat-based or tier-based changes are handled mid-term, and how price changes are communicated and when they take effect.
For annual subscriptions, address whether fees are refundable on early termination. The provider-protective default is that annual fees are non-refundable once the subscription period begins. If you offer termination for convenience, specify whether a pro-rata refund applies or whether the customer forfeits the remainder of the term.
Usage-Based Model
Usage-based pricing introduces complexity that subscription terms don’t address. The customer pays based on consumption — API calls, transactions processed, data volume, compute time, or whatever unit of measurement applies to your product.
Define the unit of measurement precisely. “API calls” isn’t specific enough. Are you counting successful calls only, or all calls including errors? Are internal system calls included? Is there a minimum billing increment? Ambiguity in the unit definition is where disputes start.
Define how usage is metered and reported. Specify that your platform’s usage records are the authoritative source for billing purposes. If the customer wants to dispute a usage figure, define the dispute process and timeline.
For products with agentic AI capabilities, the billing complexity increases further. Autonomous agents executing tasks on the customer’s behalf can generate unpredictable usage patterns. Your terms should define how agent-driven usage is metered, whether the customer can set spend caps or usage limits on agent activity, and how overage notifications work. Without these provisions, the customer receives an invoice for actions they didn’t directly initiate — which is a dispute waiting to happen.
Hybrid Model
Hybrid pricing combines a base subscription fee with variable usage charges. This is increasingly common in B2B SaaS, particularly for products where core access has a fixed cost but certain features or capacity scale with consumption.
You need both sets of provisions working together, and they need to be clearly separated so the customer understands which charges are fixed and which are variable. Specify which components of the service are covered by the base fee and which generate usage charges. Define true-up periods if usage is reconciled periodically rather than billed in real time.
The most common source of confusion in hybrid models is when the customer doesn’t understand which charges are fixed and which are variable. Clear separation in the Order Form and in the billing terms prevents this.
Provisions That Apply Regardless of Model
Late Payments and Collection Costs
Late payments are one of the most persistent operational challenges in B2B SaaS. Net 30 is the standard payment term, but in practice, many customers pay at 60, 90, or even 120 days.
Your terms should include: interest on overdue amounts (typically 1.5% per month or the maximum permitted by law), the right to suspend access after a defined cure period for non-payment, and a provision requiring the customer to reimburse your collection costs if you need to pursue payment.
The collection costs provision is particularly important. If a customer simply stops paying, your only recourse without it is to absorb the loss or fund the collection effort yourself. With it, the cost of chasing the payment shifts to the customer.
Subprocessor Cost Pass-Through
If your product relies on third-party services with variable costs — AI model API costs, cloud infrastructure charges, underlying software licenses — your billing terms need to account for the possibility that those costs increase.
Include a provision that allows you to adjust pricing to reflect increases in third-party subprocessor costs, with reasonable notice to the customer. Without this, you’re locked into a price that assumed a specific cost structure. If your AI provider raises API rates or your infrastructure costs increase, you absorb the difference. Over time, this erodes your margins on every customer relationship.
Invoice Disputes
Define a process for disputing invoices. The standard approach: the customer must notify you of a disputed amount within a defined period (typically 30 days from invoice date), pay all undisputed amounts by the due date, and provide reasonable documentation supporting the dispute. Without a defined process, a customer can withhold payment on an entire invoice because they disagree with one line item.
What Goes in the Terms vs. the Order Form
Your Terms of Service should contain the billing framework: payment terms, late payment consequences, collection cost recovery, the invoice dispute process, tax responsibility, and cost pass-through mechanics. These provisions are the same for every customer.
Your Order Form should contain the deal-specific variables: the pricing model, the fee amount or rate card, payment frequency, usage thresholds and overage rates, any committed minimums, and renewal pricing.
The advantage of this structure is that your standard Terms remain consistent and reusable. When your pricing changes or you introduce a new model, you update the Order Form template without touching the Terms. Keep the framework in the Terms and the variables in the Order Form.
The common mistake is putting deal-specific pricing mechanics into the Terms of Service. This creates a problem when you have 50 customers on different pricing structures and your Terms describe a single model.
No Boiler provides self-service legal document generation and educational content. This material is general in nature and is not a substitute for legal advice. Please have a qualified attorney review any documents before relying on them.