Terms Of Trade For Building Material Suppliers

Are your terms of trade actually protecting you when you supply building materials to builders on credit?

They can, but they need to match the way construction supply really works. Site deliveries, backorders, damaged goods, delayed projects and unpaid invoices all create risks that a generic set of terms often won't handle well.

If you're supplying timber, steel, cladding, plumbing supplies, fixtures, hardware or other high-value materials, your terms should make the deal clear before the truck leaves your yard. That means clear rules for payment, delivery, ownership, defects and what happens if something goes wrong.

What Are Terms Of Trade For Building Material Suppliers?

Terms of trade are the contract rules that apply when you sell building materials to your customers. They set out what you supply, how orders are accepted, when payment is due, when risk passes, who owns the materials, and what your responsibility is if there's a defect or delay.

For a building materials supplier, your terms do more than tidy up paperwork. They help you manage the real commercial risks of trade supply, such as:

• supplying materials on account before you're paid
• delivering expensive goods to busy or unsecured construction sites
• having stock sitting in backorder while a project timeline changes
• customers claiming your product delayed their whole build
• materials being damaged after delivery, then blamed on you
• builders becoming insolvent before paying your invoice

Your terms can sit behind your quotes, credit account applications, online sales, email orders or trade portal orders. The key is that your customer sees and accepts them before the contract is formed.

Templates can be a starting point, but construction supplier terms usually work best when they're tailored to your products, payment model and delivery process. A supplier of custom-made trusses has different risks from a wholesaler selling boxed fittings from stock.

What Should Your Terms Cover?

Your terms should cover the whole supply journey, from quote to final payment. If a point commonly causes confusion with customers, it should usually be addressed in writing.

Useful clauses for construction supplier terms in New Zealand often include:

• Quotes and pricing: how long quotes remain valid, whether prices include GST, and when you can update pricing due to supplier cost increases, freight changes or exchange rate movement.
• Order acceptance: when an order becomes binding, especially if customers send purchase orders with their own terms attached.
• Product specifications: who is responsible for checking measurements, quantities, plans, compliance needs and product suitability.
• Credit terms: payment due dates, credit limits, account suspension rights and whether you charge interest on overdue amounts.
• Delivery: delivery addresses, site access, unloading, authority to leave goods, proof of delivery and what happens if nobody is there to receive the order.
• Backorders and delays: how partial deliveries work and whether estimated delivery dates are binding.
• Risk and title: when the customer becomes responsible for loss or damage, and when ownership passes.
• Defects and returns: inspection timeframes, return authorisations, exclusions and available remedies.
• Liability limits: caps on your liability and exclusions for losses outside your control, as far as the law allows.
• Business customer obligations: storage, handling, installation and compliance with product information and manufacturer instructions.

You should also make sure your terms identify the correct legal entity. If you trade through a company, use the company name and NZBN, not just your trading name. You can check company details through the Companies Office.

How Do Building Supplies Credit Terms Work?

Building supplies credit terms work by giving your customer time to pay, while setting clear limits on how much credit you're prepared to extend. You can set your own credit terms, as long as they're clearly disclosed and don't breach consumer or fair trading laws.

Common options include:

• payment before dispatch for new or high-risk customers
• payment on delivery
• 7, 14 or 20 day accounts
• payment by the 20th of the month following invoice
• project-based credit limits
• separate deposit requirements for custom, imported or non-returnable goods

The right model depends on your cash flow and risk profile. If you regularly supply large orders before payment, your terms should give you the right to:

• set and change credit limits
• decline further supply if an account is overdue
• require payment upfront for future orders
• apply payments to older invoices first
• charge interest and reasonable recovery costs where your terms allow this
• cancel or pause backorders if payment is late

Be careful with pay-when-paid arrangements. If the Construction Contracts Act applies, pay-when-paid or pay-if-paid clauses may be ineffective. For supply-only arrangements outside that Act, your terms should still make clear that your customer must pay you by the due date regardless of whether they have been paid by someone else, unless you have deliberately agreed otherwise.

Also, don't assume the Construction Contracts Act 2002 payment claim process will always apply to a supply-only arrangement. It can be very useful for construction work, but a pure supply of materials without installation may sit outside that process. If you rely on that payment regime, get advice on whether it actually applies to your supply model.

Can You Use A Retention Of Title Clause In New Zealand?

Yes, you can use a retention of title clause in New Zealand, but the clause alone may not protect you if the customer becomes insolvent or if another secured creditor has priority. For stronger protection, you usually need to think about the Personal Property Securities Act 1999 and the Personal Property Securities Register, often called the PPSR.

A retention of title clause says you keep ownership of the goods until the customer has paid for them. For example, your terms might say title to the materials remains with you until all amounts owing to you have been paid in full.

That sounds simple, but once goods are delivered to a builder, things can get messy. The materials might be mixed with other goods, installed into a building, moved between sites, or sold on. If your customer later goes into liquidation, you may be competing with banks, financiers and other suppliers.

Under the Personal Property Securities Act, many retention of title arrangements are treated as security interests. To improve your priority, you may need to register your interest on the PPSR.

Why PPSR Registration Matters

PPSR registration can help show that you have a security interest in the goods and, in some cases, their proceeds. If your goods are inventory for your customer, timing is especially important. A purchase money security interest, or PMSI, generally needs to be registered before the customer obtains possession of inventory to get super-priority. For non-inventory goods, different timing rules can apply, including a 10 working day window after possession.

This is an area where small details matter. Your customer type, the goods supplied and the timing of registration can all change the result.

Say you supply $60,000 of cladding to a builder on 30 day terms. Your terms say you retain title until paid, but you haven't registered on the PPSR. If the builder's bank has a registered security interest over all present and after-acquired property, the bank may have a stronger claim than you. A properly drafted and registered security interest can put you in a much better position.

Your terms should also deal with practical rights, such as requiring customers to store unpaid goods separately where possible, identify them as yours, not grant competing interests, and help you protect your PPSR registration.

What Should Your Delivery And Backorder Clauses Say?

Your delivery and backorder clauses should say when delivery dates are estimates, what counts as delivery, who is responsible for site access, and what happens if goods are delayed or only partly available. This is one of the most important parts of building materials terms of trade in NZ because delivery problems can quickly become project problems.

Construction sites aren't like shopfronts or warehouses. Drivers may arrive to find locked gates, no forklift, no safe unloading area, changed site contacts or materials left exposed to weather.

Your terms should cover:

• whether delivery dates are estimates or guaranteed dates
• who pays extra freight, craneage, waiting time, redelivery or storage fees
• what happens if the site is unsafe or inaccessible
• whether the driver can leave goods unattended if authorised
• when risk of loss or damage passes to the customer
• how proof of delivery will be recorded
• whether you can deliver in instalments
• how backorders, substitutes and discontinued products are handled

A supplier delivery delay clause should be realistic. If your business depends on manufacturers, importers or freight providers, your terms should say you aren't liable for delays caused by events outside your reasonable control. You can also limit your responsibility to resupplying the goods or refunding the affected order, where the law allows.

For example, Mia runs a building supply business in Hamilton. A customer orders custom windows for a townhouse project. The manufacturer has a production delay, and the builder claims the delay caused three weeks of extra labour costs. If Mia's terms clearly said delivery dates were estimates, explained how manufacturer delays are handled, and limited liability for delay, she is in a stronger position than if she only sent a one-page quote with no terms of sale.

How Should You Handle Defective Materials And Returns?

You should handle defective materials with a clear inspection and claims process, while still respecting the legal guarantees and fair trading rules that apply. Your terms can reduce confusion, but they can't simply remove every obligation you have.

For business-to-business supply, your terms might require customers to:

• inspect goods on delivery
• notify you promptly of visible damage, shortages or incorrect items
• keep allegedly defective goods available for inspection
• stop using or installing goods once a defect is suspected
• follow manufacturer storage, handling and installation instructions
• obtain return authorisation before sending goods back

Visible damage and shortages are often dealt with quickly, such as within a few working days. Latent defects are different because they may not be discoverable on delivery. Your terms should treat these separately.

The Consumer Guarantees Act 1993 may be relevant depending on the goods, the buyer and the purpose of purchase. In trade supply, you can often contract out of the Consumer Guarantees Act where the customer is acquiring goods in trade, the exclusion is in writing, and it's fair and reasonable. The exact position depends on the transaction, so your exclusion clause should be carefully drafted rather than copied from overseas terms.

The Fair Trading Act 1986 also matters. You must not mislead customers about product quality, performance, compliance, warranties or availability. If you make claims about load ratings, fire ratings, durability, water resistance or building code suitability, make sure you have a reasonable basis for those claims.

Building product information rules may also apply to many building products supplied in New Zealand. Since the Building Product Information Requirements came into effect, certain products need specific product information made available. If you supply affected products, your terms and sales process should work alongside your product information obligations, not contradict them.

Your returns clause should clearly separate:

• faulty goods
• damaged goods
• incorrect goods supplied by you
• incorrect goods ordered by the customer
• custom-made or special-order goods
• change-of-mind returns

For custom or special-order products, you may be able to say they're non-returnable unless defective. That can be very helpful when you've ordered materials specifically for one job and can't resell them easily.

Can You Limit Liability And Make Your Terms Binding?

Yes, you can limit liability in your terms and make those terms binding, but the wording and process both matter. A strong clause won't help much if the customer never agreed to it, and an unfair or misleading clause may not be enforceable.

For building materials suppliers, liability clauses often deal with:

• delays in delivery
• loss of profit or project delay costs
• incorrect product selection by the customer
• installation errors by builders or subcontractors
• damage after delivery
• use of goods contrary to specifications or instructions
• caps on liability, such as limiting liability to the price paid for the affected goods

These clauses need to be reasonable and clear. Under the Fair Trading Act, unfair contract term rules can apply to standard form small trade contracts. A small trade contract generally covers a business trading relationship with an actual or expected annual value of less than $250,000, including GST if applicable, when the trading relationship first arises. If the relationship is expected to meet or exceed that threshold in any annual period, the small trade contract rules may not apply. If a term creates a significant imbalance, isn't reasonably necessary to protect your legitimate interests, and would cause detriment, it may be challenged.

You also need to avoid saying anything that gives customers a false impression about their rights. For example, a blanket statement that you accept no liability for anything, ever, is unlikely to be a good idea.

How To Get Acceptance

Your customer should receive your terms before or when they place the order, not after delivery. Practical ways to do this include:

• including your credit application terms with your credit account application
• requiring signed acceptance before opening a trade account
• linking or attaching terms to quotes and order confirmations
• having online customers tick an acceptance box before checkout
• printing a clear notice on quotes that sales are subject to your terms
• training your team not to accept purchase orders on conflicting customer terms without checking them

The battle of the forms can be a real issue in construction supply. Your quote may say your terms apply, but the builder's purchase order may say their terms apply. Your process should make it clear that you only accept orders on your terms unless you agree otherwise in writing.

If you update your terms, tell customers before new orders are placed. Don't assume a silent website update automatically changes an existing trade account arrangement.

Key Takeaways

• Building materials terms of trade should cover payment, delivery, title, defects, returns, liability and order acceptance.
• If you supply on credit, set clear due dates, credit limits and rights to suspend supply when invoices are overdue.
• A retention of title clause is useful, but PPSR registration under the Personal Property Securities Act can be critical for stronger protection.
• Delivery clauses should deal with site access, proof of delivery, backorders, partial deliveries and delays outside your control.
• Defects and returns clauses should work with the Fair Trading Act, Consumer Guarantees Act and building product information rules.
• Your terms are much easier to rely on when customers see and accept them before they place an order.

If you'd like help with trade supply terms, retention of title and PPSR protections, delivery and backorder clauses, and defect and liability wording, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.