What payment terms should you use? (NZ)

Your payment terms decide how long you wait to be paid, and most New Zealand businesses inherit them by accident — whatever the invoicing software defaulted to. Here's what the common terms actually cost you, why the 20th of the month following is worse than it looks, and what to put in your terms of trade instead.

The terms most NZ businesses are using

Four turn up again and again:

• Due on receipt — payment expected when the invoice arrives. Common in retail and one-off jobs.
• 7, 14 or 30 days — a fixed count from the invoice date. The most common terms for trades and services.
• 20th of the month following — everything invoiced in one month falls due on the 20th of the next. Long-standing New Zealand convention, especially with larger customers and merchants.
• Deposit up front, balance on completion — normal on bigger jobs and anything with materials in it.

Why the 20th of the month following is worse than it looks

This is the one worth doing the arithmetic on. The terms sound like "about three weeks", but the wait depends entirely on when in the month you invoiced:

• Invoice on 1 March → due 20 April. That's 50 days.
• Invoice on 15 March → due 20 April. 36 days.
• Invoice on 28 March → due 20 April. 23 days.

So the same terms mean anything from three weeks to seven, and the work you did earliest waits longest. Average it out and you are funding your customer for roughly 35 days, before anyone is even late.

There is one thing to be said for it: a fixed monthly due date suits customers who run one payment run a month, and invoicing late in the month is genuinely quicker to collect. If you keep these terms, invoice as soon as the job is done rather than batching at month end — that single habit can cut a fortnight off the wait.

Shorter terms get paid sooner — up to a point

Cutting 30-day terms to 14 does move the money, but not by the full fortnight, because a share of customers pay late regardless of what the invoice says. Treat the terms as the start of the clock rather than a guarantee. What actually shortens the wait:

1. Invoice the day the job finishes. The gap between finishing and invoicing is dead time you control completely, and it is usually the biggest single delay.
2. Put a pay-now link on the invoice. It removes the "I'll do it when I'm at the computer" step, which is where invoices go to sleep.
3. Take a deposit on anything with materials. If you are out of pocket before you start, the deposit is not a favour, it is the job's cashflow.
4. Match the terms to the customer, not the industry. A big contractor with a monthly payment run will not pay on 7 days no matter what you print. A homeowner will.

What your terms of trade should say

The terms on the invoice are only the summary. The document that does the work is your terms of trade, agreed before the job starts. At a minimum it should be clear on:

• When payment is due, in words that cannot be read two ways. "20th of the month following invoice date" beats "monthly".
• What happens when it is late — interest, collection costs, stopping work. You cannot charge interest in New Zealand unless your terms say so, which is covered in charging interest on overdue invoices.
• Deposits and progress payments, with the amounts and the trigger for each.
• Who is actually contracting — the company, not the person you deal with. Get the full legal name and the company number.
• How disputes get raised, and by when. A deadline for queries stops "I was never happy with it" arriving on day 75.

Have a lawyer draft or check the document once. It is a small fixed cost against every job you will ever invoice, and a template off the internet written for another country will not help you here.

Terms only work if someone follows up

Good terms shorten the wait; they do not collect the money. The invoice that goes past its due date still needs a person to notice and pick up the phone, and that is the step that slips in every small business. If your 60 and 90-day columns are already filling up, start with how to reduce aged receivables, and see improving cashflow by getting invoices paid faster for the rest of the levers.

Following up is the job Gary does. It reads your Xero invoices, works out what has gone past the terms you set, and phones the customers you have approved during business hours — so the terms on the invoice mean something without you having to make the call.

This guide is general information, not legal or financial advice.

Common questions

What does "20th of the month following" mean?

Every invoice dated in one month falls due on the 20th of the next month. An invoice sent on 3 May and one sent on 30 May are both due on 20 June. It is a long-standing New Zealand convention, and it means your wait depends on when in the month you invoiced — anything from about three weeks to seven.

What are standard payment terms in New Zealand?

There is no legal standard. In practice small businesses use 7, 14 or 30 days from the invoice date, while the 20th of the month following is still common with larger customers and merchants. You are free to set your own, as long as they are agreed before the work starts.

Can I change my payment terms with an existing customer?

Yes, but the change has to be agreed, not announced on an invoice. Tell them before the next job, give a reason and a start date, and put it in the terms of trade they sign. New terms printed on an invoice for work already done are unlikely to bind anyone.

Should I ask for a deposit?

If you are buying materials or blocking out several days, yes. A deposit covers your outlay and it is the cheapest credit check there is — a customer who will not pay a deposit is telling you something useful before you are out of pocket.

Do shorter payment terms actually get you paid faster?

Usually, though not by the full difference, because some customers pay late whatever the invoice says. The bigger wins are invoicing the day the job ends, adding a pay-now link, and following up the moment an invoice goes past due.