Debt collection for a small business: what to expect in New Zealand

Debt collection can work. In our experience, however, it is never a guarantee. A customer who says they dispute the invoice generally stops the process where it stands, and even a court confirming the debt does not mean the money arrives. Both steps cost money, and who carries that cost usually comes back to what is in your terms of trade. All of that is worth understanding before you hand anything over.

What we have seen happen when an account is handed over.

One big misconception is that sending an account to a debt collection agency is a magic bullet, the big stick in your back pocket. What we have seen is that getting your money back from a customer who will not pay is a great deal harder than most people expect. Between the collection process, the courts, and where you do or do not stand legally, it can feel as though things are set up in favour of the person who has not paid.

The account goes to an agency and they begin working on it. If the customer says they dispute the invoice, collection generally stops there and the matter moves into a dispute resolution process instead. That happens regardless of how valid the invoice is or how much work was completed.

In New Zealand that can take a few forms. It might be negotiation between the two of you, or mediation with somebody neutral helping you get to an agreement. Or it might be something more formal, where a decision gets made for you: adjudication, which is common in construction under the Construction Contracts Act, arbitration, or the Disputes Tribunal, which has heard claims up to $60,000 since January 2026. Which of those is open to you depends on what your contract says and on how much is involved.

Even where nobody disputes anything, a collection can still come to nothing. The customer treats the agency the way they treated you: no answer, the same excuses, another promise that goes nowhere. Sometimes it turns out they have done this before, their credit record shows it, and they were never going to pay anybody.

If that is where it ends up, the next decision is yours: whether to take it through a legal process. That is a separate decision, with its own cost, its own timeline and no certainty at the end of it.

And if it does go that far, a court can officially say that the money is owed to you. In our experience that does not make the person pay it. Getting it paid can mean going back to the courts for enforcement, and that is the stage where money can be taken out of wages, property can be seized and sold, or a debtor can be stopped from selling an asset until you have been paid. Where the debtor is a person rather than a company, it can end up as a bankruptcy question.

The costs, and who ends up carrying them.

Most agencies charge some kind of initial fee, and then charge further fees only where they are successful, taking a portion of what they collect. A legal process carries its own costs on top of that.

So the question to be honest with yourself about is whether your business can carry those costs if they are never recovered. The other half of it is what your own paperwork lets you try to recover in the first place.

Whether you can pass those costs on depends on what your terms of trade say, and on those terms having been disclosed to that customer before the work started.

So is it worth sending?

Often, yes. Collection agencies have been part of New Zealand business for a very long time and they work at scale, and that is because collection succeeds often enough to be worth doing.

What it never comes with is a guarantee, and that is the part to be clear-eyed about before you send anything. If you have reached the end of your own internal resources, and you understand the costs, the situation you are actually in and the limits of what anybody can do with it, then it is usually worth giving it a go. The two things to be comfortable with first are that you can either wear the costs or you have the processes in place to on-charge them, and that you are going in eyes wide open.

One thing to know before you hand it over.

Once an account has gone to an agency, if the customer then comes straight to you and tries to pay around them, the agency is still likely to charge you for the work they have done. So the handover is a decision, and it is worth making it deliberately rather than in frustration.

If it does happen, the answer is the straightforward one. They had the opportunity to pay you. They now need to deal with the agency and pay the associated costs. Whether those costs sit with them or with you comes back, again, to what your terms of trade say and how they were disclosed.

It also means the step before this one matters. A reminder, and then a letter that names a date and what happens if it passes, is what gives a customer their last chance to deal with you directly. That sequence is set out here, and this page picks up where it ends.

What can stop a collection, whoever is doing it.

Even the best providers will tell you it is not one hundred percent bulletproof. There are scenarios where a debt simply cannot be collected:

• There is a dispute that needs to go to the Disputes Tribunal or through arbitration.
• The customer does not care. They are already bankrupt and they do not intend to pay you.
• They are simply stubborn. I do not care, take me to court, I am not going to pay you.
• The company no longer exists. Where a business has been closed, our experience is that there is nothing left to collect from, and without a personal guarantee we cannot pursue the directors personally.

We cannot get blood out of a stone.

It is also getting harder for agencies to do the job at all. There are real limits on how a debt can be collected, and across the Tasman regulators have taken action where collection crossed into harassment. Whatever an agency can do for you happens inside those limits, which is worth knowing before you expect a quick result.

Are you collecting from a business, or from a person?

This is worth knowing before you start, because it changes what your paperwork has to carry. A company can be checked at any time. Where you want to look at a director personally, or the customer is a sole trader or a private individual, you are dealing with somebody’s personal information, and what you can do with it depends on the privacy wording in your terms of trade.

The same is true of default listing, which is one of the tools available once a non-payment cannot be resolved. A default can be recorded against a customer and it affects their credit score, so when they go looking for lending it shows up as money they owe. Often they have to pay you before they can borrow. The tricky part is that you cannot legally default list somebody unless it is covered in your terms of trade. And if you are pushed on it, those terms need to be proven to have been disclosed to that exact customer.

This is why terms of trade matter more than they look. They decide whether the costs can be recovered, and whether these tools are available to you at all.

The best debt collection tool is debt prevention.

Strictly speaking, the only real debt prevention is not providing credit at all, and for most businesses that is a journey rather than a switch. What is available in the meantime is everything that happens before the work starts: knowing who you are dealing with, terms that have been disclosed and accepted, a deposit, progress payments so you are never carrying the whole job, and security where the exposure is large.

Debt collection agencies have their place, and sometimes sending an account is exactly the right call. What we have seen, though, is how much more there is to be gained further up the hill: preventing the debt in the first place, managing the risk before the work starts, and getting paid faster on the jobs that are going perfectly well.

The foundations are set out in what to do when you are not being paid for work you have done, and if you are still working out what kind of non-payer you are dealing with, the five types of customer who do not pay is the place to start.

If you have a debt you are deciding about right now, you do not have to weigh it up on your own.