Protect Your Business with Clear Terms of Trade
You have completed the work and sent the invoice but the money still hasn’t arrived. Meanwhile, wages, suppliers and tax payments are falling due.
As accountants, we see how overdue accounts receivable can put pressure on a business. Sales may look healthy, but too much money remains unpaid by customers. Late payments restrict the cash available for everyday expenses and tax obligations, increasing the risk of arrears.
Without clear, agreed terms, it can also be harder to establish what was agreed and enforce your payment arrangements.
One practical step towards protecting your business is to establish clear Terms of Trade before accepting work.
Clear expectations support fair business
Doing business in New Zealand should be fair for both parties. You deliver the goods or services you have promised, and your customer pays according to the agreed terms.
Clear Terms of Trade help everyone understand their responsibilities. They cannot guarantee payment or prevent every dispute, but they can provide a stronger foundation for managing expectations and addressing problems.
Depending on your business, your terms should address:
Goods or services: What is included and excluded.
Pricing: What you charge and whether GST is included.
Payment: When deposits, progress payments and final payments are due.
Variations: How additional work or changes are approved and charged.
Late payment: Any applicable interest and debt recovery arrangements.
Goods and equipment: Responsibilities for ownership, loss, damage, insurance and returns.
Disputes and cancellations: How concerns, complaints and cancellations will be handled.
A business may already have enforceable rights through an accepted quote, emails or other agreements. Clear written terms help document those arrangements and reduce uncertainty.
Your terms must be fair and lawful
Having a clause in your terms does not automatically make it enforceable.
Any late-payment interest or debt recovery charges should be clearly agreed in advance, lawful and enforceable. Your lawyer can advise on appropriate wording and any restrictions.
Where the Consumer Guarantees Act 1993 applies, contracting out is permitted only where the requirements of section 43 are satisfied. These include the goods or services being supplied and acquired in trade, all parties being in trade and agreeing in writing to contract out, and it being fair and reasonable that they are bound by that agreement. Your lawyer can advise whether this exception applies.
Unfair contract term rules may also apply to standard form consumer contracts and certain business contracts. Terms should protect legitimate business interests while respecting customers’ legal rights.
Unpaid invoices can become tax problems
Profit on paper does not mean there is money in the bank.
When customers pay late, your business may struggle to meet its obligations—even when you have plenty of work.
Your GST accounting basis also matters. On the invoice or hybrid basis, you may need to account for GST on sales before receiving payment. On the payments basis, you generally account for GST on sales when payment is received.
Clear payment terms, supported by appropriate deposits, regular invoicing and prompt follow-ups, can help reduce cash flow pressure. They work best alongside tax planning and regular monitoring of overdue accounts.
Who can help you?
A New Zealand lawyer experienced in commercial contracts can draft or review Terms of Trade suited to your business and advise on their enforceability. They can also advise on guarantees, ownership provisions and security arrangements where appropriate.
A credit management specialist can assist with customer credit checks, credit applications, payment procedures and debt collection arrangements, subject to applicable legal requirements.
Your accountant can help you review overdue accounts, identify cash flow risks, establish practical invoicing and payment processes, and plan for tax obligations.
At Apex Tax New Zealand, we can work alongside your legal adviser to help align these arrangements with how your business operates.
Put your terms in place before problems arise
Provide your proposed terms before the customer accepts your quote or places an order, and obtain and retain evidence of their agreement.
Whether particular terms become binding depends on how the contract is formed and the surrounding circumstances. Adding conditions to an invoice after an agreement has been made may not make those conditions binding. Seek legal advice before introducing new terms for existing customers.
Review your terms when your services, customer base or trading arrangements change. Industry-specific requirements may also apply, particularly in areas such as residential building and construction.
You work hard to build your business. Clear, properly agreed Terms of Trade can help protect that effort and make expectations clearer for everyone.
Contact Apex Tax New Zealand to discuss your accounts receivable, cash flow and payment processes.
Selected legislative authorities
There is no single Act requiring every New Zealand business to have a standalone Terms of Trade document. Contract formation and incorporation of terms are governed in part by common law. Relevant legislation includes:
Fair Trading Act 1986 — sections 26A–26D and 46L–46M: Provisions concerning unfair terms in standard form consumer contracts and specified trade contracts, including the test and examples of unfair terms.
Consumer Guarantees Act 1993 — sections 6–13 and 28–31: Statutory guarantees relating to goods and services, where applicable. Section 43 restricts contracting out and sets requirements for qualifying business transactions.
Goods and Services Tax Act 1985 — sections 9, 19, 19A and 20: Relevant provisions concerning time of supply, GST accounting bases and calculation of GST payable.
These authorities are not exhaustive. Other legislation and industry-specific requirements may apply.
Disclaimer
This article provides general information only. It is not legal advice, a contract template or advice on your particular circumstances. Reading it does not, by itself, create an adviser–client relationship. Terms of Trade do not guarantee payment, asset recovery or protection from liability. Obtain advice from a New Zealand lawyer before adopting, changing or relying on contractual terms, and seek accounting advice on your specific tax position. Nothing in this article or disclaimer excludes rights or obligations that cannot lawfully be excluded.
