Terms of trade: what they are, and what yours should say

Terms of trade set the rules of the game between you and your client. They are the safety net underneath the work and the relationship, agreed before the job starts.

What are terms of trade?

Terms of trade are often misunderstood as payment terms that get sent with the invoice. In reality, they are the operating rules of your business relationships. They sit underneath your deposits, progress payments, invoicing timing, dispute processes, recovery rights, credit decisions, security and guarantees.

Ultimately, they are about roles and responsibilities, and a common understanding between you and your client. That reaches well beyond whether you get paid: liability, insurance, risk, access to site, securing your goods and equipment on somebody else’s site, and the leverage you have if things change. Getting paid matters enormously too, and it sits inside all of that.

Strong terms do not exist only to protect you when something goes wrong. They exist to prevent confusion in the first place, so fewer issues ever need resolving later. They are an incredibly important component of your credit control and risk reduction. They give you a starting point, a better legal position and clarity.

And they are not only for big companies offering formal credit accounts. If you invoice after the work is done, fund materials or labour upfront, carry progress claims or ever have a dispute, you are extending credit, even if you do not call it that.

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What goes in terms of trade

Strong terms of trade are clear and cover the ground. These are the clauses we look for, and what each one does for you in practice.

Price and payment

Your pricing, deposits, progress payments, when you invoice and when payment is due. The backbone of cash flow; without clarity here, everything downstream becomes negotiable.

Default and late payment

What counts as non-payment, and what you are entitled to do when an invoice becomes overdue.

Interest and collection costs

Interest on late payments and the costs of chasing: collection, legal fees and admin. Without this you often end up paying out of your own pocket to get your own money back.

Variations

How changes to scope, price or work are agreed once a job is underway, ideally signed by both of you. It avoids "we never agreed to that".

Delivery and risk

When goods, materials or services count as delivered, and when the risk passes to the customer.

Ownership of goods

Who owns the goods or materials until you are paid. Crucial if a customer fails or disputes payment after you have supplied.

Security interests

Consent to register a security interest on the PPSR over what you supply on credit. This is what allows you to act like a bank.

Guarantees

A director standing behind the company's obligations personally, where it is appropriate.

Privacy

How you collect and use information about individuals, so you can run credit checks and recover debts without breaching privacy obligations.

Defects, cancellation and warranties

How defects are reported and fixed, what happens if a customer cancels after you have committed time and materials, and what is and is not warranted.

Limitation of liability

A cap on your exposure, so one job cannot become an existential threat. Line it up with your insurance policy.

Disputes

A structured pathway before anything escalates, so issues stay commercial and procedural.

Health and safety, confidentiality, intellectual property, subcontracting, assignment, force majeure and clear definitions round them out. Having token terms of trade is not enough. They need to be up to date, legally strong and fit for purpose.

Disclose them up front, and make acceptance clear

It is not your job to go through your terms of trade line by line with every client. It is your job to disclose them up front, before any work starts or any materials are bought, and to make sure acceptance is clear before you start working with somebody. A signature, a ticked box on an account application, or a written go-ahead that refers to them: whatever it is, you should be able to show it.

Your terms can then carry the clauses that give you options later. A privacy clause lets you run a credit check and do a risk assessment before you give credit to a sole trader or an individual. Penalties for late or non-payment, and your ability to on-charge collection costs, only apply if they are in there. And supplementary documents give you more leverage again: a credit application, a personal guarantee from a director, or a general security agreement where the exposure warrants it.

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Payment terms: what to put on your invoice

Payment terms say when an invoice is due: 7 days, 14 days, 30 days (what some software calls “net 30”), or the 20th of the following month. The bigger the gap between doing the work and the invoice being due, the more likely customers are to put paying you further down their list, even in business and commercial work. So shorter is better, and so is invoicing the day the job is done rather than at the end of the month.

Your payment terms belong in your terms of trade, agreed before the work starts. Printing them on the invoice reminds the customer of what was agreed; on its own, it is the first time they have seen them. The same goes for interest and collection costs: you cannot apply interest or recover your collection costs unless the terms your customer accepted explicitly allow it.

The law your terms need to work with

Terms of trade are a contract, and a few New Zealand laws shape what they can do. In plain terms:

• Unfair contract terms. Under the Fair Trading Act 1986 (sections 46H to 46M), a term in a standard form contract can be declared unfair if it is one-sided and not reasonably needed to protect your interests. That covers consumer contracts, and since August 2022 small trade contracts too, generally business contracts under $250,000 (section 26B). Only the Commerce Commission can ask a court to declare a term unfair. In practice: keep your terms balanced, and be ready to explain why each protection is there.
• Guarantees. The Property Law Act 2007 (section 27) requires a guarantee to be in writing and signed by the person giving it. In practice: a guarantee clause only works if the right person signs it, as themselves.
• Privacy and credit checks. When you collect information about an individual, such as a sole trader, a homeowner or a director, the Privacy Act 2020 applies, including the new notification rule for information collected from someone else (IPP 3A, from 1 May 2026). Credit checks also fall under the Credit Reporting Privacy Code 2020. In practice: your terms and credit application should say what you collect and why, and get their agreement before you run a check.
• Consumer Guarantees Act and Fair Trading Act. When you work for homeowners, their statutory guarantees apply whatever your terms say, so your terms should acknowledge them rather than try to contract out of them.

Where terms of trade usually let a business down

Far too many business owners have terms of trade that feel like legal words. They are there, but nobody has ever shown them what those words mean in practice in their business. So the terms go out as an attachment to a quote, or worse, with the invoice, or they sit in a drawer somewhere, drafted years ago and never built into how work flows. If your terms are not actively shaping how you get paid, they are not doing their job.

Two questions are worth asking. Who actually wrote your terms of trade? Did you do them yourself, copy someone else’s, use a template, or have them professionally prepared? And when were they last reviewed? Legislation changes, the business climate changes, and most businesses grow and change how they work. Terms that have not been revisited alongside those changes may no longer reflect the business you run now.

When the customer’s contract rules

One thing catches out a lot of subcontractors and suppliers. If you sign the customer’s supplier agreement or subcontract, their agreement is the ruling document, not your terms of trade. There is no harm in asking them to sign yours as well, but from a legal strength perspective you are under their contract, and you may be carrying more of the risk than you realise. That is when the protection has to come from elsewhere: deposits, progress claims and knowing exactly what you have signed.

The signed form that named the wrong company

One client of ours had a customer who had paid reliably for nine years. Then the customer walked in to say the company was going into liquidation. When we went back to the signed credit application to see what we could still do, the legal entity written on it did not exist. Nobody had checked it against the Companies Office when the customer was first taken on, and the customer had come with the business when our client bought it. By then it was far too late to fix the paperwork or register anything on the PPSR.

That is the sort of tiny administrative detail that can feel completely irrelevant when somebody has been paying you perfectly for nine years. Right up until the moment it is not. More on that in checking a customer before you give them credit.

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Making your terms a living part of how you get paid

The best terms of trade are the ones you understand and use. They reach the customer before anything starts, are clearly accepted, and sit behind every decision about deposits, credit, variations and follow-up. When the structure is clear, the conversation is no longer about the relationship, it is about the process. And without them, you are left negotiating after the work is done, when your money is already out the door and the power sits with the person holding the cash.

Terms of trade are only one piece of the puzzle. They have to be up to date, fit for purpose and in play, and even then they are not a magic bullet. What they give you is a process you can work your way through when something goes wrong. They certainly do not guarantee you get paid, but they are best practice, and they put you in a far stronger position than goodwill alone.

A living, purposeful document, fit for purpose, that you understand and know how to use. Just like a seat belt, it cannot help you if it is not on.

This page is education and commercial insight from our own research and experience, not legal advice. Do your own research, and get legal advice for your own situation.