# Service Credits Clause

Source: https://contracko.com/clause-library/service-credits

# 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.

### How Contracko helps

Contracko tracks the SLA metrics and credit calculation formulas in every service agreement, giving your operations team a single reference for what credit applies when a threshold is missed. Its contract tracking flags chronic credit-earning periods as an obligation milestone, and reminders alert you when to apply credits to the next invoice cycle.

## Legal references

- [BW 6:91 Contractual penalty provisions Dutch law](https://wetten.overheid.nl/BWBR0005289)
- [BW 6:248 Reasonableness and fairness Dutch law](https://wetten.overheid.nl/BWBR0005289)

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.

## Relevant for

[IT Services](https://contracko.com/industries/it-services)[Managed Service Providers](https://contracko.com/industries/managed-service-providers)[Software & SaaS](https://contracko.com/industries/software-saas)[Telecommunications](https://contracko.com/industries/telecommunications)[B2B SaaS Companies](https://contracko.com/industries/b2b-saas)

## Related clauses

- [Service Level Agreement (SLA)](https://contracko.com/clause-library/service-level-agreement)
- [Liquidated Damages Clause](https://contracko.com/clause-library/liquidated-damages)
- [Limitation of Liability Clause](https://contracko.com/clause-library/limitation-of-liability)
- [Benchmarking Clause](https://contracko.com/clause-library/benchmarking)

## Related terms

- [Service level agreement (SLA)](https://contracko.com/glossary/sla)
- [Liquidated damages](https://contracko.com/glossary/liquidated-damages)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)

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## Frequently asked questions

Common questions about this clause.

- **Q:** Are service credits the same as a penalty?
  **A:** They function similarly under Dutch law as a boetebeding, so a court may moderate them if they are manifestly excessive.

- **Q:** Do service credits cap the supplier's total liability?
  **A:** Only if the contract says so; otherwise the customer may also claim damages, so the interaction must be drafted explicitly.

- **Q:** Can service credits be earned back after a period of good performance?
  **A:** Yes, if the contract includes an earn-back mechanism. Suppliers often negotiate this to avoid permanent credit accumulation when performance recovers.

- **Q:** What is the difference between a service credit and a price reduction?
  **A:** 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.

- **Q:** What triggers a right to terminate rather than merely taking credits?
  **A:** 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.

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