service credits
Definition
Service credits are a form of compensation a vendor must give you, usually as a discount on your next invoice, when their service falls below the performance standards promised in your contract. Instead of paying you money, the vendor reduces what you owe them in the future as a way of making up for the failure. These credits are typically triggered when a vendor misses uptime guarantees, delivery deadlines, or other measurable performance targets.
Example
Your cloud software provider promises 99.9% uptime each month, but their system goes down for 10 hours, dropping below that threshold, so they apply a 15% credit to your next monthly bill.
Watch Out
Service credits often sound generous but are designed to limit the vendor's liability, meaning you may only recover a small credit even when an outage costs your business far more in lost revenue.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.