Debtor management for SMEs: how to get paid faster

Why does debtor management matter so much?

Every dollar owed to you is a dollar you have already spent to earn. Wages, materials and overheads are paid; the profit is sitting in someone else’s bank account. For established SMEs, debtors are often the largest single item on the balance sheet after property.

The scale of the problem is measurable. Xero Small Business Insights found New Zealand small businesses waited an average of 24.1 days to be paid in the June 2026 quarter, with payments arriving an average of 4.7 days after the due date. Businesses selling to large companies and on construction projects often wait much longer.

The regulatory backdrop has not helped small suppliers. The Business Payment Practices Act 2023, which would have required large entities to disclose their payment practices, was repealed in March 2024. The Government said it would address payment times through non-regulatory measures such as eInvoicing. That puts the onus on SMEs to manage their own debtors well.

Step 1: set clear terms of trade

Your terms of trade are the foundation. They should cover:

• Payment terms, for example 14 days from invoice, or the 20th of the month following.
• Retention of title, so goods remain yours until paid for.
• Interest or collection costs on overdue amounts, if you intend to use them.
• The right to stop supply when an account is overdue.
• Personal guarantees from directors of company customers, for larger accounts.

Have a lawyer draft or review them, and make sure every credit customer signs them before you extend credit.

Step 2: check customers before offering credit

Credit is a loan to your customer. Before offering it:

1. Check the Companies Register for company customers: directors, filing history and any liquidation notices.
2. Ask for trade references and follow them up.
3. Consider a credit report from a credit bureau for larger accounts.
4. Set a credit limit and review it regularly.

Step 3: register on the PPSR

If you supply goods on credit with retention of title, register a financing statement on the Personal Property Securities Register. Without registration, your retention of title claim may not hold up if the customer becomes insolvent. With liquidations at their highest level since 2010 in 2026, this matters more than ever.

Step 4: invoice fast and accurately

Many payment delays start with the invoice:

• Invoice on completion or delivery, not at month end.
• Include purchase order numbers and the right contact details.
• Make it easy to pay: bank account details, payment links and a clear due date.
• Use eInvoicing where customers accept it, as it can reduce processing delays in larger organisations.

Step 5: follow up on a fixed schedule

A consistent follow-up routine is the single most effective collection tool.

Record every contact. Be polite but persistent. Most late payers are disorganised rather than unwilling.

Step 6: manage large customers differently

Large customers often have fixed payment runs and strict approval processes. To get paid on time:

• Learn their payment run dates and submit invoices to meet them.
• Build a relationship with their accounts payable team.
• Confirm purchase order and approval requirements before starting work.
• For construction, understand the payment claim process under the Construction Contracts Act.

Step 7: know when to escalate

When a customer stops responding, stops paying or pays other suppliers first, act quickly. Options include a formal letter of demand, a debt collection agency, the Disputes Tribunal for smaller claims, or legal action. If the customer is a company in financial trouble, the order in which creditors act can affect what you recover.

Measuring progress

Track these monthly:

• Debtor days (debtors ÷ annual sales × 365)
• Aged debtors report: current, 30, 60, 90+ days
• Percentage of sales to your top five customers
• Bad debts written off

Our guide to the working capital ratio shows how debtor days fit into the cash conversion cycle.

When finance makes sense

Even with excellent debtor management, some businesses have long payment cycles built in. A working capital facility or unsecured line of credit can carry the gap without straining supplier relationships or the tax account.