Provided you have good systems in place, you will hopefully prevent large amounts of debt from arising.  It is possible, however, that some debt will arise.  It is important that you actively manage this debt to prevent it from becoming ‘bad debt’ that can only be recovered (if at all) through formal legal processes.

Ensuring your invoicing processes are up to speed is a good way to manage debt that does arise.  The Construction Contracts Act provides a specific mechanism through which you can issue regular invoices during the course of construction work.  We recommend that you take advantage of this ‘Payment Claim’ process as it is beneficial to both you and your client.  It means your client is able to deal with costs on the basis of several smaller payments.  It also means that you can identify much earlier on if you have a bad-paying client and, if so, take action much sooner.

The Construction Contracts Act also specifically sets out what is to happen where a payment claim is not paid.  This makes enforcement of any unpaid amount simpler and quicker.

If you want to take advantage of the Payment Claim regime, you must ensure that your terms of trade enable you to issue payment claims and include a mechanism for determining: the number of payment claims and the interval between those claims; the amount of each claim; and the date when claims are due. 

When you submit a Payment Claim to a client:

  • The claim needs to be in writing and contain certain details, such as identifying the building work and the period to which it relates, the claimed amount and due date for payment, how the amount was calculated, and state that the claim is made under the Construction Contracts Act 2002. 
  • There are additional details that need to be provided to Residential Occupier clients such as an outline of the process for responding to that claim; and an explanation of the consequences of not responding to a payment claim or not paying the claimed amount, or the scheduled amount, in full.
  • You also need to also provide a blank Payment Schedule for the client to complete and submit to you if they dispute the payment claim. 
  • If a client does not submit a Payment Schedule disputing a payment claim, the amount due under the payment claim becomes an enforceable debt if it is not paid by the due date for payment.
  • If a client does submit a Payment Schedule proposing to pay a lesser amount than the Payment Claim, the client must identify an amount the client proposes to pay.  If the client does not pay the proposed amount by the due date for payment, the proposed amount becomes an enforceable debt.

If an invoice is not paid on time, you need to take action as soon as possible to work out why and give you the best chance of getting your money into your bank account.  You should have a system for following-up invoices that you use for every invoice.  Your follow-up system could include an initial phone call on or just after the date the invoice was due.  Check that they have the invoice and ask what date it will be paid.  Make a note of the answers (date and sign the note as proof).  If payment is not received, escalate the issue quickly. 

Speed is essential to getting paid.