Payment terms in New Zealand: is "20th of the month" costing you?

Ask a New Zealand tradie, wholesaler or professional firm when their invoices are due and there’s a good chance the answer is “the 20th of the month following.” It’s so common it feels like a rule. It isn’t; it’s a convention, and one that quietly lends your customers a large slice of your working capital.

How long is “20th of the month following” really?

The term means an invoice is due on the 20th of the month after it’s issued. The effective credit period depends on when in the month you invoice:

Invoice date	Due date	Days of credit
1 May	20 June	50
10 May	20 June	41
20 May	20 June	31
31 May	20 June	20

Spread evenly across a month, that averages about five weeks. Add the customers who pay a few days or weeks late, and many businesses on these terms are effectively waiting six to eight weeks for their money.

What does that credit cost your business?

Your debtors balance is roughly your daily sales multiplied by the average days customers take to pay. Change the days and you change the cash locked up.

Illustrative example. A Christchurch electrical contractor bills $90,000 a month excluding GST, or about $3,000 a day. If customers take an average of 45 days to pay, roughly $135,000 sits in debtors at any time. Bring that down to 30 days and debtors fall to about $90,000, freeing around $45,000 of cash, permanently, without selling a single extra job.

There’s a tax angle too. On the invoice basis for GST, you can owe GST on an invoice before the customer has paid it. A business with long terms often finds the payments basis much gentler, provided its turnover qualifies.

What terms work better for New Zealand businesses?

You don’t have to choose between “20th of the month” and “cash on the counter.” Plenty of options sit in between:

• 7 or 14 days from invoice. Increasingly common for small jobs and professional services, and simple to understand.
• Deposits. For larger jobs, a deposit before work starts covers materials and signals commitment. Builders, joiners and event businesses use this widely.
• Progress billing. Invoice at agreed milestones instead of at completion. On a three-month job, that can mean three payments instead of one long wait.
• Direct debit or card on file. For regular customers and subscriptions, collecting automatically on a set date removes the chase entirely.
• Payment on completion for one-off customers. Domestic customers, in particular, are often happy to pay on the day if asked clearly.

Whatever you choose, the terms belong in writing: on the quote, in your terms of trade and on every invoice. Customers rarely argue with terms they agreed to before the work began.

How do you move existing customers to shorter terms?

Changing terms for long-standing customers needs a bit of care, but it’s very doable:

1. Start with new customers. Put shorter terms on every new account from now on.
2. Pick a natural moment for existing ones. An annual price review, a new contract or the start of a financial year gives you a reason to update terms.
3. Explain plainly. A short note saying you’re moving to 14-day terms from a certain date, with plenty of notice, is usually accepted.
4. Offer convenient ways to pay. Online payment links on invoices or direct debit make prompt payment easier.
5. Be consistent. Terms only work if late payment is followed up. See chasing unpaid invoices.

Does invoicing faster matter as much as terms?

Often more. On 20th-of-the-month terms, an invoice sent on 2 June instead of 30 May is due on 20 July instead of 20 June, a month later for the sake of three days. Invoice the day the work is done, from your phone if necessary, and you’ll often collect faster than any change in terms would achieve. Mobile invoicing apps and job management software make that easy for trades.

Should you check a new customer’s credit first?

For larger accounts, yes. A short credit application asking for the legal entity name, NZBN, trade references and a signed acceptance of your terms gives you the information you need if anything goes wrong later. You can check the company on the Companies Office register to confirm it exists, who the directors are and whether it’s in good standing. For a sole trader or partnership, a personal guarantee from the owners is common for significant credit limits. Set a credit limit for each account and review it when orders grow; many bad debts start with a good customer whose limit quietly tripled.

What about early-payment discounts?

They work, but they cost more than they look. A small discount for paying three weeks early is equivalent to a very expensive form of finance once annualised. Most businesses get a better result from deposits, progress claims and prompt invoicing. If you do offer a discount, build it into your pricing so you aren’t simply giving away margin.

When debtors are healthy but cash still isn’t

Some businesses do everything right and still carry large debtors, because their customers are councils, large companies or main contractors that set their own terms. In that case the gap is structural, and it grows with every new contract. A working capital facility can carry it, and you can find out what you could qualify for without a credit check.

Turning faster payment into growth

Tighter terms free cash you’ve already earned. If the business still needs funding to take on bigger customers or longer contracts, talk to us. We look at unsecured options for trading businesses, sized on turnover and bank statements, and loans secured on property. Asking won’t touch your credit file, your enquiry isn’t shopped around, and a real person on our New Zealand team reads it. Answer the form accurately and we can usually tell you on the first call what’s realistic. Start your enquiry.