Payment terms are a business decision

Most NZ tradies inherit their payment terms from whoever trained them - 30 days because that's what the industry does, or "payment on receipt" because it sounds reasonable. But payment terms are a commercial decision, not a tradition, and getting them right has a direct impact on your cashflow and the type of clients you attract.

This guide covers what your terms should include, what's standard for different types of NZ trade work, how to handle deposits, late fees, and progress payments - and how to use your terms to filter out clients who are going to cost you more than they're worth.

What your payment terms must include

At minimum, your payment terms should cover five things:

1. When payment is due A specific number of days from invoice date, or a specific calendar date on each invoice. Not "on receipt" or "net 30" - an actual, unambiguous deadline. "Payment due within 14 days of invoice" is clear. "Payment on receipt" is not.

2. Accepted payment methods List the ways you accept payment: bank transfer (include your account number), credit card (if you accept it), or any other method. Clients should never have to ask how to pay you - that friction creates delays.

3. Deposit requirements For any job where you need to commit materials or significant time upfront, state your deposit requirement. A brief line: "A 30% deposit is required to confirm booking for all jobs over $1,000" is sufficient.

4. Late payment consequences If you intend to charge late payment interest or refer debts to a recovery service, say so upfront. Late payment terms that weren't agreed to at the start cannot be enforced retroactively. Even if you never enforce them, stating them clearly changes debtor behaviour.

5. Dispute resolution Include a brief clause stating that disputes must be raised in writing within 7 days of invoice. Without this, clients can raise disputes long after the due date as a delay tactic.

Standard NZ payment terms by work type

There's no single "correct" payment term for trade work in NZ - it depends on the nature of the work, the client relationship, and your own cashflow needs. Here are the norms:

Residential work under $5,000: 7-14 days from invoice date. Most residential clients expect and accept this. A 7-day term is increasingly standard for smaller jobs.

Residential work over $5,000: 14 days, with a 30-50% deposit before commencement. For larger renovations, a progress payment schedule is more appropriate than a lump-sum invoice at the end.

Small commercial work (under $50,000): 14-20 days. Many small commercial clients operate on 30-day terms internally - asking for 14 days is reasonable and often agreed. Don't assume you have to match their internal terms.

Large commercial or government work: 20-30 days is common, and contracts often specify the term. Read the contract carefully - some large contractors use 30-day terms from the end of the month following invoice, which can push your actual payment out to 60 days in practice.

Ongoing maintenance or service agreements: Monthly invoicing in arrears, due within 7-14 days. If you're doing regular maintenance work for a client, a standing payment arrangement (automatic payment by the client) reduces the admin burden significantly.

Deposits: getting them right

A deposit isn't asking for a favour - it's standard practice in most trade industries and a sign of professionalism. Here's how to structure them:

What rate to charge:

Jobs $500-$2,000: 50% upfront
Jobs $2,001-$10,000: 30-40% upfront
Jobs over $10,000: 20-30% upfront, with a defined progress payment schedule

The deposit should cover your material costs at minimum. If you're spending $3,000 on materials for a $7,000 job, a deposit of less than $3,000 means you're personally funding the client's project.

When to ask for the deposit: At booking confirmation, not on the day you start. Send a deposit invoice as soon as the job is booked and don't schedule the work until it's paid. A client who won't pay a deposit to hold a booking is often a client who won't pay the final invoice on time either.

How to handle deposit reluctance: Most legitimate clients accept deposits without question. If a client objects, it's worth understanding why:

"I've been burned by tradies not showing up" - understandable; offer a booking confirmation and a clear start date in writing
"We don't pay deposits" - find out their standard process; some large commercial clients genuinely don't, and a credit check or payment reference may be more appropriate
Resistance without a specific reason - this is often a sign of cashflow problems on their side

Late payment fees: do they work?

In NZ, you can charge late payment interest if it was agreed in your terms from the start. A common rate is 1.5-3% per month on overdue amounts.

In practice, most NZ tradies don't enforce late fees - and the reasons are understandable. Charging a fee to a client you want to keep feels counterproductive. The client disputes the fee, creating a second issue to resolve.

A more effective approach:

Tighter terms and faster follow-up recover more money than fees on already-overdue invoices
State the fee in your terms even if you don't always charge it - the existence of a fee clause changes debtor behaviour
Reserve fee enforcement for clients who are serially late or who you don't want to work with again

If you do charge late fees, apply them consistently - only charging some clients and not others creates relationship complexity and potential discrimination claims.

Progress payments for larger jobs

For any job over 2 weeks or $10,000, a lump-sum invoice at the end is a cashflow risk. A single large invoice at completion means you've been funding the project for weeks - and if payment is disputed or delayed, the impact is significant.

A standard progress billing structure for a $30,000 renovation:

Deposit (30%): $9,000 - paid at contract signing, before work begins
Progress payment 1 (30%): $9,000 - at a defined milestone (e.g., framing complete, fit-out commenced)
Progress payment 2 (25%): $7,500 - at second milestone (e.g., linings complete, near practical completion)
Final payment (15%): $4,500 - on practical completion

Progress milestones should be defined in writing before work starts - in your contract, quote, or a simple schedule. "When I'm happy with it" is not a milestone. "On completion of framing and building inspection" is.

Keep the final payment retention small - 10-15% is standard. A large retention (20%+) creates a situation where the client has significant leverage at the end of the project.

Using your terms to filter clients

Payment terms aren't just about getting paid - they're a screening tool. A client's response to your standard terms often tells you more about their intentions than anything else they say.

Signs of a good client:

Pays the deposit promptly without negotiation
Asks specific, practical questions about the payment schedule
Has worked with tradespeople before and accepts standard terms as normal

Signs of a client who may be trouble:

Refuses or argues about a standard deposit
Asks for 60-day terms for work that would normally be 14 days
Claims "we always do it differently" with no specific alternative offered
Wants to pay "when they see the finished result" or "after they've had a chance to assess it"

None of these are automatic disqualifiers, but they're worth taking seriously. A client who resists your standard terms before you've started is already telling you how they'll behave when the invoice arrives.

Where to put your terms

Payment terms only protect you if the client has seen them. Include them in:

Every quote or proposal: Even a one-liner - "Payment due within 14 days of invoice. A 30% deposit is required to confirm booking."
Every invoice: Your payment terms should be printed or clearly stated on the invoice itself
Your contract or service agreement: For larger jobs, a brief contract that references your terms is worth having. A simple template from the Master Builders Association, Electrical Contractors Association, or a generic NZ trade contract template is sufficient
Your website or booking confirmation email: Transparent terms upfront prevent disputes later

Getting client sign-off on your terms

For jobs over $2,000, it's worth getting written acknowledgement that the client has seen and agreed to your terms. This doesn't require a formal contract - an email confirmation is sufficient in NZ: "I've attached our quote and standard terms. Please reply to confirm you'd like to proceed."

Their reply is a written acceptance. Keep it. If payment later becomes a dispute, their written acceptance of your terms is significant.

FAQ

Can I change my payment terms mid-contract? No. You cannot change the terms of an existing contract without the other party's agreement. If you want to apply new terms to an ongoing client, apply them to the next new job and notify the client in writing in advance.

Do my payment terms need to be formally drafted by a lawyer? No. For most trade work, a clear, plain-English statement of your terms is legally sufficient. You only need formal legal drafting for complex commercial contracts, frameworks with large contractors, or situations involving significant intellectual property or liability issues.

What's the maximum late payment interest rate I can charge in NZ? There's no statutory cap specifically for trade business B2B invoices. A rate of 1.5-3% per month (18-36% per annum) is commercially standard. However, if the rate is unreasonably high, a court may reduce it. Rates of 2% per month or below are rarely challenged.

Should I have different terms for residential and commercial clients? Yes, if your pricing and cashflow requirements differ. Many tradies use standard 14-day terms for residential work and 20-day terms for commercial work. The key is consistency within each category.

What do I do if a client's purchase order has different payment terms than mine? For larger commercial clients, they may issue a purchase order with their own terms (often 30 or 45 days). Whether their terms override yours depends on which document forms the basis of the contract. If you accept the PO without objection, you may be bound by their terms. Counter-sign with your own terms or note your standard terms in your acceptance to preserve your position.