Late Payment Clause Template For NZ Terms Of Trade

Late invoices can put real pressure on your cash flow. You might have done the work, paid your staff or suppliers, and sent the invoice on time - only to spend the next month chasing payment.

The good news is your terms of trade can do a lot of the heavy lifting. A clear late payment clause helps your customers understand when payment is due, what happens if they miss the date, and what steps you can take without having to negotiate from scratch each time.

This doesn't need to be harsh. The best clauses are clear, fair and easy to apply in practice.

Can You Charge Interest On Overdue Invoices In NZ?

Yes, you can usually charge interest on overdue invoices in New Zealand if your customer agreed to that term before or when the contract was made.

There isn't a general rule that automatically lets every business charge interest on every late commercial invoice. In most cases, your right to add interest comes from your contract, such as your signed terms of trade, accepted quote, online checkout terms, terms of sale or account application.

That means timing matters. If you only print an interest charge on the bottom of an invoice after the job is finished, you may struggle to rely on it unless the customer had already agreed to those terms.

A good interest clause should clearly say:

• when the invoice becomes overdue
• the interest rate that applies
• whether interest is calculated daily, weekly or monthly
• whether the rate is simple interest or compounding interest
• whether interest applies to the GST-inclusive invoice amount

In New Zealand, interest rates should be commercially reasonable. A rate that looks punitive or out of all proportion to your real loss may be challenged as an unenforceable penalty under contract law.

You should also think about the Fair Trading Act 1986. If your terms are standard form terms used with consumers or small trade customers, unfair contract term rules may apply. A one-sided, hidden or excessive late payment clause can create risk, even if the customer technically clicked accept.

For most small businesses, the safer approach is to use a clear rate that reflects the cost of late payment, administration time and cash flow impact - not a rate designed to punish.

What Should Your Invoice Payment Terms Say?

Your invoice payment terms and business terms and conditions should tell the customer exactly how much to pay, when to pay, how to pay, and what happens if they don't pay on time.

Payment terms are often scattered across quotes, invoices and emails. That can create confusion. Your terms of trade payment clause should bring the key details into one place, then your invoices should match it.

Due Dates

Be specific about the due date. Avoid vague wording such as payment due promptly or payment due on completion.

Common options include:

• Payment upfront: useful for custom work, online orders or new customers
• Deposit plus balance: for example, 50% before work starts and 50% before delivery
• 7, 14 or 30 days from invoice date: common for ongoing business customers
• End of month plus a set number of days: useful if your accounts team runs monthly cycles
• Milestone payments: helpful for projects where work is delivered in stages

Payment Method

Your terms should say which payment methods you accept and whether any transaction fees apply. For example, you might accept bank transfer and card payments, but pass on a card surcharge where the law allows it and where you clearly disclose it.

GST And Invoice Details

If you're GST-registered, your invoice should deal with GST clearly. Your terms can say whether prices are inclusive or exclusive of GST, and your invoice should use the same approach.

Small inconsistencies can cause late payment. If your quote says one thing and your invoice says another, customers may use that as a reason to delay.

What Should A Late Payment Clause Include?

A late payment clause should cover due dates, default interest, recovery costs, suspension rights, and any practical steps you can take when an account is overdue.

Think of the clause as a mini playbook for late invoices. It shouldn't just say interest applies. It should tell you what you can actually do next.

A well-drafted clause will usually cover:

• When payment is due: for example, 14 days after the invoice date
• When payment is late: for example, if cleared funds aren't received by 5pm on the due date
• Interest: the rate, calculation method and start date
• Recovery costs: whether the customer must pay reasonable costs of chasing overdue amounts
• Suspension: whether you can pause supply, access, services or deliveries
• Application of payments: whether you can apply payments to the oldest invoice first
• No set-off: whether the customer must pay undisputed amounts without deducting unrelated claims
• Ongoing obligations: whether the customer still has to pay for work already performed

Say Mere runs a Wellington design studio. Her terms say invoices are due 14 days from issue, overdue interest is 18% per year calculated daily, and she can recover reasonable administration and collection costs.

She invoices a customer $4,600 including GST on 1 March, due on 15 March. The customer pays on 14 April, which is 30 days late. The interest calculation is $4,600 x 18% x 30 / 365, which is about $68.05.

That number is easy to explain because the clause is clear. If Mere's terms only said late fees may apply, the customer would have more room to push back.

Can You Recover Debt Collection Costs From Customers?

Yes, you can often recover reasonable overdue account costs if your contract clearly says the customer must pay them, but the clause needs to be fair and carefully worded.

This is the part people often call a debt recovery clause. In your terms of trade, it usually means a clause requiring the customer to reimburse costs you reasonably incur because they paid late.

Those costs might include:

• reasonable administration costs for managing the overdue account
• fees charged by an external collection agency
• reasonable legal costs for advice about the overdue account
• bank dishonour fees or failed payment fees

The key word is reasonable. A flat charge that has no connection to your actual costs can be risky, especially in standard form contracts with consumers or small trade customers under the Fair Trading Act.

You should also keep records. If you add a cost to the customer's account, make sure you can show:

• what the cost was
• when you incurred it
• why it related to that overdue invoice
• why the amount was reasonable

For example, if your terms say the customer must pay all reasonable collection costs and a collection agency charges you a commission or fee for that specific overdue account, your contract may allow you to pass that cost on. If your terms say the customer must pay a $500 admin fee for any invoice that's one day late, that may be harder to justify.

If an overdue invoice has turned into a serious dispute, get tailored advice before escalating. The right next step depends on your documents, the amount owed, the customer relationship and whether the customer is raising a genuine issue about the goods or services.

Can You Suspend Work Or Stop Supply For Late Payment?

Yes, you can usually suspend work or stop supply for late payment if your contract gives you that right and you use it carefully.

Suspension can be more useful than interest. If you're still providing services while old invoices remain unpaid, your exposure keeps growing. A clear suspension clause lets you pause the work before the unpaid balance gets out of hand.

Your clause should explain:

• which overdue amounts trigger suspension
• whether you need to give notice first
• how much notice you'll give
• what happens to delivery dates or project timelines during the suspension
• whether the customer must still pay for work already done
• whether restart fees or extra costs apply

A practical clause might say you can suspend services if an invoice is more than 7 days overdue and remains unpaid after you give written notice. That gives the customer a fair chance to fix the issue, while protecting your cash flow.

Be careful where suspension could cause a safety issue, major operational impact or breach of another legal obligation. For example, if you provide critical IT support, healthcare-related services or time-sensitive supply, you may need a more tailored process.

You also need to check whether the customer has a genuine reason for withholding payment. If your work is defective or incomplete, the Consumer Guarantees Act 1993 may be relevant for consumer customers, and your contract terms, including any sale of goods terms, may also contain acceptance or dispute processes. For business-to-business supply, you may be able to contract out of parts of the Consumer Guarantees Act if the Act allows it, the customer is acquiring goods or services in trade, and the wording is fair, reasonable and in writing.

How Do You Make A Late Payment Clause Enforceable?

Your late payment clause is more likely to be enforceable if the customer agreed to it before the contract was made and the clause is clear, fair and proportionate.

Great wording won't help much if the customer never accepted it. The way you present your terms is just as important as what the clause says.

Make Sure The Customer Accepts The Terms Early

Good acceptance methods include:

• a signed quote, proposal or heads of terms that attaches or links to your terms
• a credit application where the customer ticks that they accept your credit terms
• an online checkout checkbox that isn't pre-ticked
• a purchase order process that clearly incorporates your terms
• a written email acceptance of your quote and terms before you start work

If your customer sends their own purchase order terms, you may end up with a battle of the forms. In plain English, that means both sides are trying to contract on their own terms. Your process should make it clear when your terms apply and how conflicts are handled.

Use Plain, Visible Wording

Late payment clauses shouldn't be buried in tiny print. Use headings, defined due dates and straightforward language. This helps customers understand the deal and helps you apply the clause consistently.

Watch The Fair Trading Act

The Fair Trading Act 1986 can affect how you use standard terms, especially with consumers and small trade contracts. Small trade contract protections can apply where each party is in trade and the relationship is below the statutory value threshold at the time the contract is entered into.

The Act can also deal with misleading conduct and unconscionable conduct. So, if your website says no late fees, but your terms charge interest and recovery costs, that inconsistency can create problems.

Templates can be a helpful starting point, but payment clauses work best when they're tailored to your invoicing cycle, customer type and risk level.

Late Payment Clause Template Outline

This outline can help you brief your legal team or review your current terms, but it isn't a finished legal document. A lawyer should tailor it before you use it with customers.

1. Payment Due Date: state exactly when invoices are due, such as 14 days from the invoice date or before delivery.
2. Method Of Payment: list accepted payment methods and when payment is treated as received, such as when cleared funds reach your account.
3. Late Payment Trigger: explain when an invoice becomes overdue, including weekends, public holidays and failed payments if relevant.
4. Default Interest: set the interest rate, start date, calculation method and whether it applies to GST-inclusive amounts.
5. Recovery Costs: say the customer must reimburse your reasonable costs of managing and recovering overdue amounts.
6. Suspension Rights: state when you can pause services, deliveries, access or further work, and whether notice is required.
7. Allocation Of Payments: allow your business to apply payments to the oldest invoices, interest and costs in a clear order.
8. No Set-Off For Undisputed Amounts: require the customer to pay amounts that aren't genuinely disputed.
9. Continuing Liability: confirm the customer remains liable for goods supplied, work completed and costs incurred before suspension or termination.
10. Conflicts With Other Documents: explain whether your terms override purchase orders, emails or customer documents where they conflict.

Once you have the clause, make sure your team actually uses it. Your quote, invoice, onboarding emails and payment reminders should all tell the same story.

A simple internal process can help:

1. Send the terms before accepting the job or order.
2. Get clear acceptance in writing or through your online process.
3. Invoice promptly and match the due date in your terms.
4. Send a polite reminder before or on the due date.
5. If payment is late, calculate interest and costs only as your terms allow.
6. Use suspension rights consistently and keep written records.

Key Takeaways

• You can usually charge interest on overdue invoices in New Zealand if the customer agreed to the clause before the contract was made.
• Your payment clause should be specific about due dates, GST, payment methods, interest, costs and suspension rights.
• Late payment charges should be reasonable and proportionate, not a punishment.
• Recovery cost clauses work best when they cover actual, reasonable costs and you keep records.
• Standard form terms need extra care under the Fair Trading Act, especially for consumers and small trade customers.
• A template outline is useful, but your terms should be tailored to how your business invoices and supplies customers.

If you'd like help with your terms of trade, late payment clauses, customer contracts and payment processes, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.