Terms of Trade
& Debt Recovery
for NZ Businesses

New Zealand Terms of Trade must operate within the framework of the Fair Trading Act 1986 and the Consumer Guarantees Act 1993. The Fair Trading Act prohibits misleading or deceptive conduct and unfair contract terms. The Consumer Guarantees Act implies minimum guarantees into consumer contracts that cannot be contracted out of when dealing with consumers.

For business-to-business transactions, the Consumer Guarantees Act can generally be excluded — but this must be done explicitly and correctly. Terms that attempt to exclude consumer guarantees for consumer transactions are unenforceable, and relying on them can expose you to Fair Trading Act liability.

Beyond statutory requirements, effective Terms of Trade should include: clear payment terms and due dates; penalty interest and collection cost provisions; liability limitation and exclusion clauses; retention of title clauses where goods are supplied; clearly defined scope and deliverables; and dispute resolution provisions that give you a defined path when something goes wrong.

The Personal Property Securities Register (PPSR) is a national register where businesses can record their security interest in goods they have supplied but not yet been paid for. A properly registered PPSR interest, backed by retention of title provisions in your Terms of Trade, can protect your ownership of those goods if a customer defaults or becomes insolvent.

Without a PPSR registration, if your customer goes into receivership or liquidation, goods you supplied but haven't been paid for can be claimed by the receiver or liquidator for the benefit of secured creditors — and you become just another unsecured creditor in the queue. With a valid PPSR registration, you may be able to recover the goods or be paid ahead of unsecured creditors.

A Purchase Money Security Interest (PMSI) is a specific type of PPSR registration that can give you super-priority over other creditors — including banks — for the goods you supplied. To qualify, registration must be completed within prescribed timeframes and the Terms of Trade must correctly establish the retention of title arrangement. We help ensure both the terms and the registration are done correctly.

Penalty interest on overdue accounts is only enforceable if it is clearly stated in your Terms of Trade before the contract is entered into. The rate and the trigger date must be specified — courts will not imply a right to charge interest that isn't in the contract. Typical commercial rates range from 1.5% to 2.5% per month on overdue balances.

Similarly, the right to recover debt collection costs — including agency fees, solicitor costs and court filing fees — must be expressly provided for in your terms. Without a contractual basis for cost recovery, you may spend more chasing a debt than you actually recover.

We draft both provisions to be enforceable under NZ law, clearly triggered and commercially appropriate for your industry. When combined, they create a genuine financial incentive for customers to pay on time — because the cost of not paying increases every day the account remains outstanding.

Generic templates downloaded from the internet or purchased from stationery providers are written to cover the average business — which means they are perfectly suited to no business in particular. They often contain outdated legal references, clauses that don't apply to your industry and critical omissions that leave you exposed in the areas that matter most to your business.

More seriously, some commonly circulated templates contain clauses that are unenforceable or non-compliant with current NZ legislation. Relying on terms you believe protect you — when they actually don't — can be worse than having no terms at all, because it delays your response to a problem while giving you false confidence.

Custom Terms of Trade drafted for your specific business and industry take into account your actual risk profile, your customer base and the commercial realities of your sector. They are designed to be enforceable — not just to look like they cover everything. The cost of getting this right at the start is a fraction of the cost of dealing with a dispute later.