Are service credits the same as a penalty?

They function similarly under Dutch law as a boetebeding, so a court may moderate them if they are manifestly excessive.

Do service credits cap the supplier's total liability?

Only if the contract says so; otherwise the customer may also claim damages, so the interaction must be drafted explicitly.

Can service credits be earned back after a period of good performance?

Yes, if the contract includes an earn-back mechanism. Suppliers often negotiate this to avoid permanent credit accumulation when performance recovers.

What is the difference between a service credit and a price reduction?

A service credit is a pre-agreed remedy applied against the next invoice without needing to prove loss. A price reduction under Dutch law requires proportionality to actual non-performance and may need separate negotiation.

What triggers a right to terminate rather than merely taking credits?

Most SLAs include a chronic-breach threshold: if credits exceed a set percentage of monthly fees over consecutive periods, the customer may terminate for cause. The trigger must be defined precisely.

Service Credits Clause

Provides automatic price rebates when the supplier misses agreed service levels.

What it is

Service credits are pre-agreed deductions from the fees that apply automatically when the supplier fails to meet a service level, for example uptime or response time targets. They are the standard financial remedy attached to an SLA.

Why it matters

Service credits give the customer a fast, no-fault remedy without proving loss, and they incentivise the supplier to perform. How they interact with other remedies and any liability cap must be drafted carefully.

How to apply it

Tie each credit to a specific, measured service level with a clear calculation.
State whether credits are the sole remedy or stack with damages and termination rights.
Cap the total credits per period and define how they are applied to invoices.
Add an earn-back or step-in trigger for repeated or severe failures.

Negotiation tips

• Customers should keep the right to terminate for chronic breach, not just take credits.
• Suppliers should make credits the exclusive financial remedy up to a defined ceiling.

Common pitfalls

• Credits set so low they cost less than under-delivering, removing any incentive.
• Unclear whether credits exhaust the customer's remedies or sit alongside them.

Legal references

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

Frequently asked questions

Common questions about this clause.