What are debtor days?
Debtor days (sometimes called days sales outstanding) is the average number of days between issuing an invoice and receiving payment. It’s one of the most useful numbers in a small business because it tells you how much of your own cash is tied up funding your customers.
How to calculate it
A simple version:
Debtor days = (trade debtors ÷ credit sales for the period) × days in the period
Example scenario — illustrative only. A plumbing business has $60,000 of unpaid invoices at the end of a quarter, and invoiced $180,000 during that 90-day quarter.
(60,000 ÷ 180,000) × 90 = 30 debtor days
How does New Zealand compare?
Xero’s Small Business Insights for the June 2026 quarter found New Zealand small businesses waited an average of 24.1 days to be paid, with payments arriving 4.7 days after the due date on average. Those are cross-industry averages; construction and professional services often run longer.
Seven ways to reduce debtor days
- Invoice the day the work is done. Every day an invoice sits in drafts adds a day to your debtor days.
- Make terms explicit. Put the due date on the invoice as a date, not “20th following”.
- Make paying easy. Include bank details, a reference and a payment link where possible.
- Remind before the due date. A polite reminder three days early catches invoices stuck in approval.
- Follow up on day one of overdue. Call, don’t just email, for larger amounts.
- Take deposits and bill in stages for bigger jobs.
- Review who you give credit to. Customers who consistently pay late cost you money.
Payment claims under the Construction Contracts Act 2002
For builders, subcontractors and trades, the Construction Contracts Act 2002 provides a structured way to get paid for work done — often described as “pay now, argue later”.
The payment claim
A contractor can serve a payment claim on the party responsible for paying. In broad terms, a valid claim should:
- Be in writing.
- Identify the construction contract and the work, and the period it relates to.
- State the amount claimed and the due date for payment.
- Show how the amount was calculated.
- State that it’s made under the Construction Contracts Act 2002.
- Be accompanied by the prescribed information explaining the process for responding — see Form 1 on building.govt.nz.
The payment schedule
If the payer disagrees with the amount, they must respond with a payment schedule that states what they will pay (the scheduled amount) and, if it’s less than claimed, how they calculated it and why it’s different.
The timeframes
The contract can set the timeframes. If it doesn’t, the default is 20 working days after the payment claim is served, both for the payment schedule and for payment (Lane Neave summary).
When there’s no response
If the payer doesn’t provide a payment schedule in time and doesn’t pay, the claimed amount can become recoverable as a debt due, and the contractor may have further options, including suspending work after giving notice. Where a payment schedule is provided but the scheduled amount isn’t paid, similar remedies can apply to that amount. The details matter, so talk to a construction lawyer before relying on them.
A collections routine that works
Most late payments aren’t deliberate. They’re invoices lost in an inbox, waiting for approval, or queued behind a supplier who shouted louder. A simple, consistent routine fixes most of them:
| Day | Action |
|---|---|
| Invoice day | Send the invoice with the due date shown as a date, and a clear payment reference |
| Due date minus 3 | Friendly reminder email with the invoice attached |
| Due date plus 1 | Phone call to the person who approves payments |
| Due date plus 7 | Second call and written reminder, noting your terms |
| Due date plus 14 | Escalate: pause further work or credit, and seek advice if needed |
Keep notes of every contact. If a dispute does arise, a clear record makes it easier to resolve.
Retentions
Head contractors may hold back a portion of each payment as retention money. Since 5 October 2023, retention money is held on trust, must be kept separate, and head contractors must report to subcontractors on what’s held. Our retention money guide covers it.
Building payment claims into your cash flow
| Task | When |
|---|---|
| Serve payment claim | On the date set in the contract (often month-end) |
| Diarise response deadline | Same day |
| Chase payment schedule | A few days before the deadline |
| Record expected payment date | In your cash flow forecast |
| Escalate if missed | The next working day, with advice |
Funding the gap while claims are paid
Even with perfect paperwork, there’s a gap between paying your crew and being paid on a claim. A revolving line of credit is designed for exactly that — draw for wages and materials, repay when claims are paid. Our construction and trades funding page explains how it works for builders and subbies.
This guide is general information, not legal advice.