Unpaid invoices are a cashflow problem before they are a legal one, and the businesses that recover best are the ones whose systems catch a slow payer early rather than those with the most aggressive collection process.
Prevention does more than recovery
Before any of the legal machinery matters:
- Credit-check new customers. A credit report and Companies Office search cost very little against a bad debt.
- Have written trading terms that specify payment terms, interest on overdue accounts, and recovery of collection costs. Without a contractual right, recovering your costs of collection is difficult.
- Take personal guarantees from directors of small company customers where the exposure warrants it. This is normal commercial practice and it changes your position entirely.
- Register retention of title on the PPSR where you supply goods on credit. A clause without registration is much weaker against a liquidator or a competing secured creditor.
- Invoice promptly and correctly. A disputed or late invoice is the most common excuse for non-payment.
The escalation path
Reminder. Systematic, at defined intervals, and unemotional. Many overdue accounts are administrative rather than deliberate.
Contact by phone. More effective than email, and it establishes whether there is a dispute or a cashflow problem. Those need different responses.
Formal letter of demand. Stating the amount, the basis, a deadline, and what happens next. This is often the point at which genuine disputes surface.
Payment arrangement. Where the customer cannot pay in full, a documented instalment arrangement acknowledging the debt is frequently better than proceedings. It also restarts limitation.
Collection agency or solicitor. Effective for straightforward debts, and the cost needs weighing against the amount.
Choosing the forum
Disputes Tribunal handles claims up to a monetary limit, with no lawyers, low fees, and a referee rather than a judge. Suitable for smaller straightforward claims. Decisions are binding with limited appeal rights.
District Court handles claims above the Tribunal limit up to its own jurisdictional ceiling. More formal, costs more, and legal representation is normal.
High Court for larger claims.
Adjudication under the Construction Contracts Act is the right route for construction payment disputes — faster and cheaper than court, with a binding determination enforceable while other proceedings continue.
For an undisputed debt against a company, a statutory demand under the Companies Act is a powerful tool: failure to comply within the statutory period creates a presumption of insolvency supporting a liquidation application. It should not be used where the debt is genuinely disputed, because it can be set aside and costs awarded against you.
Getting judgment is not getting paid
This is the point most businesses underestimate. A judgment is an entitlement, not money. Enforcement options include attachment orders against wages, charging orders over property, warrants to seize property, and examination of the debtor as to means.
Each takes time and costs money, and none produce anything from a debtor with no assets. Before spending on proceedings, form a view on whether the debtor can actually pay. Suing someone with nothing converts a bad debt into a bad debt plus legal costs.
Limitation
Claims must be brought within the limitation period, generally six years from when the cause of action accrued for a simple contract debt. Acknowledgment of the debt or part payment can restart it.
Businesses carrying old receivables should check whether they are still recoverable before spending on collection.
If the customer becomes insolvent
Register your claim with the liquidator or receiver promptly and gather your documentation. Your position depends almost entirely on what security you hold:
- A registered PPSR security interest puts you ahead of unsecured creditors for the secured property.
- Retention of title, properly registered, may allow you to recover unsold goods.
- A personal guarantee gives you a claim against the guarantor independent of the company.
- Construction retentions held on trust sit outside the general asset pool.
- Unsecured creditors typically recover little.
Be cautious about payments received shortly before liquidation — voidable transaction rules can require a creditor to repay amounts received in the period before insolvency, which is an unpleasant surprise for a creditor who thought they had been paid.
Practical guidance
Act early, keep it systematic and unemotional, and decide based on the debtor’s capacity to pay rather than on principle. The Disputes Tribunal and District Court publish their processes and fees free, business.govt.nz publishes debt recovery guidance, and the PPSR is available at ppsr.companiesoffice.govt.nz.
General information only, not legal advice.
