“I can’t pay you until I’ve been paid.” What it means, and what you can do.
The work is done and your money is now waiting on somebody else's. There is more you can do about that than it feels like right now.
By Mel Curwood. More than 25 years working across New Zealand business, and nearly a decade helping trades, contractors and blue-collar businesses get paid in full, on time, every time. Over 350 of them.
When a customer says they can’t pay you until they’ve been paid, your payment has been tied to money neither of you controls. We hear it often, and often it is said honestly. For construction contracts, New Zealand law says a pay-when-paid clause has no legal effect, which means it can’t be used as a reason to hold back money that is due to you under the contract. Either way, you still have choices about this job and the next one.
What is really going on when a customer says this?
You have done the work. The wages are paid, the materials are paid for, and the invoice is due. Then the answer comes back: they would pay you, but they are waiting on somebody else.
New Zealand business is tightly connected, and whether it is a liquidation or a late payment, everything gets passed down the line. Everybody is waiting for everybody else to pay. What is easy to miss from where you are standing is that the money has often already been paid in at the top. Often the homeowner or the client at the head of the job has already paid, and the money has stopped somewhere on the way down.
Sometimes the person telling you this is doing their best. They are talking to you, they are being straight about it, and they genuinely cannot pay until their own money arrives. Sometimes it has simply become the way they do business, because it works for them. Either way, if you have accepted it before, that is no reflection on you. Many owners in this position take it anyway, and the reason is usually the same: “I’m worried they’ll go to the next person down the road.” That is a real worry, and there are ways to protect yourself without losing the work.
Is it your problem that they can’t cash flow?
Their cash flow problem is real, and it may not be of their making. It is still theirs. What “I can’t pay you until I’ve been paid” really asks is for your business to fund theirs, at no charge, for however long the money above them takes to move.
We sat with a large contracting company who knew exactly what was happening to them. They were being used as a free source of working capital by the people above them in the chain, they knew the terms were not fair, and they had simply stopped believing anything could change. If the arrangement comes from someone who knows you need the work more than they need you, that is one of the five types of customer who do not pay, and it is worth naming as one.
What does New Zealand law say about pay when paid?
For construction contracts, section 13 of the Construction Contracts Act 2002 says a conditional payment provision has no legal effect. It cannot be enforced, and it cannot be used as a reason to withhold a payment that is due under the contract. The Act describes these as provisions that make paying you conditional on, or timed by, the other party being paid by someone else, including what the industry calls “pay when paid” and “pay if paid” clauses.
How that applies to you turns on what kind of contract you are working under and what was actually agreed, so it is worth reading against your own paperwork. Like any document, a contract comes down to how it is interpreted on the day.
What can you do about this one, right now?
The instinct is to keep chasing, or to keep working and hope that finishing is what gets you paid. Before either, it is worth getting clear on a few things, because they decide which moves are open to you.
Where is the money actually stuck?
Work out where you sit in the chain, and who you are really relying on for payment. Your customer may be one link below the person who holds the money. Knowing who awarded the job and who pays whom tells you whether this is a wait, a warning, or both.
Should you keep working while you wait?
More work does not always improve your chances of being paid. If the money is already slow, every extra day of labour and materials can simply increase what you have exposed. Decide the point at which work stops if payment is not happening, and decide it before you are worn down, rather than in the middle of it.
What should be in writing?
What is owed, what the customer has told you about why, and what they have said will happen next. Keep the conversation going, and keep a record of it, including their own acknowledgements. That record is what you will be leaning on if the wait turns into something else.
If they need you to keep going, what can you ask for in return?
One of our clients, a plumbing business, was owed $200,000 by a property developer building several homes. The market shifted, the houses would not sell, and the developer was waiting on those sales to pay his bills.
He was doing the right thing. He stayed in contact, and he asked the plumber to keep working with him while he got the houses sold. The plumber agreed, on one condition: that the developer sign a general security agreement.
He signed it. The plumber registered it on the Personal Property Securities Register straight away, and became a secured creditor. When the money still had not arrived, they used that security to place a mortgage over land the developer owned.
None of that got the money paid any sooner. What it changed was where the plumber stood while they waited, and how much stronger that position would be if the developer’s company closed. Most trade creditors are unsecured, and being secured changes where you stand.
If you are going to act like a bank, do what a bank would do, and secure yourself.
Two honest things about that story. The open communication was rare. More often, a customer in trouble goes quiet or starts dodging. And security documents like these are not something you reach for on every job. They earn their place on the bigger job, the unknown customer, or the moment somebody asks you to keep carrying them.
A request to keep working is leverage. It is often the last point where you have something they need, so it is the point to ask for something in return.
You can’t get blood out of a stone. So where does the protection come from?
People will tell you that you can’t get blood out of a stone, and once the money has run out, that is true. Which is exactly why the protection in that story mattered. The plumber had something to ask for while there was still something to secure. The earlier that conversation happens, the more options you have.
80% of getting paid on time happens before you start the job. That's where the work begins.
What stops it happening on the next job?
Think of the gap between putting your time, money and materials into a job and getting paid for it as a plank out over the ocean. The bigger that gap, the further out you are standing. Pay when paid pushes you further out, by a distance somebody else decides.
So the protection is set before the work starts:
- Know who is paying before you agree to start. Where you sit in the chain, who awarded the job, and whether the customer’s own payment is tied to someone else’s.
- Make payment clear at the start. How and when you expect to be paid, in your terms, on your quote, and in the conversation before the job begins.
- Ask for money up front, and along the way. A deposit, and progress payments on larger jobs, keep the gap short. A customer willing to pay up front is also showing you they intend to pay.
- Match your milestones to your exposure. If the money you are carrying grows faster than the money coming in, the payment structure has not kept pace with the job.
- Have the security conversation early. On a bigger job or an unknown customer, before anyone is in trouble.
Not all of it will be yours to set. If you are working under somebody else’s contract, you can’t rewrite it on your own. What you can still decide is whether you take the job, what you put at risk before the first payment, and when the work stops.
We cover the foundations of this, from terms of trade and credit checks to deposits and the PPSR, in what to do when you are not being paid for work you have done.
If you are reading this with a particular job in mind, you do not have to work out the next step on your own.
If this is not the first time you have waited on somebody else’s money, the fix is in how the work is set up before it starts. That is what the Paid Right Accelerator builds, over six intensive learning blocks, alongside other owners and leaders working through the same thing.