Construction contracts are legally binding documents wherein parties agree upon risk identification and allocation. To enable smooth transactions, contract documents contain many clauses and subclauses; the payment terms are among the most crucial. Item rate, lump sum, and cost-plus are the most commonly used payment terms, each designed differently to handle various risks associated with a construction project. Payment terms that fit a particular scenario may not necessarily be suitable for application under different conditions. With every project being unique, each project should be carefully analyzed for the choice of payment terms, failing which parties may face many conflicts and disputes post-contract award. Moreover, payment terms are very closely linked to the project cash flow, and any wrong interpretation can jeopardize the project’s progress. Notwithstanding the importance of these payment terms, there is a tendency to choose terms that unreasonably shift risk to one party, only to find the affected party resorting to claims and disputes later. Therefore, this chapter focuses on identifying the key features of contracts based on various payment terms and, through simple case studies, explains the cost impact of agreeing upon a wrongly chosen payment term.