RTF MEMO - extended terms of payment

There has understandably been considerable angst recently over the unilateral actions of some large companies to extend the payment term for goods and services provided to 60 days and beyond.

From discussions with MBIE, Commerce Commission officials and legal experts I am advised that such actions are not of themselves illegal.

This advice is reinforced by the comments of the Minister of Finance, Hon Bill English, in reply to the Parliamentary question from Jacinda Ardern on Tuesday 8th March 2016.

“Jacinda Ardern: Does he believe the new terms of payment for contractors and small businesses adopted by Fonterra, including a shift to paying invoices after an additional 61 days, is acceptable?

Hon BILL ENGLISH: Well, it would be unacceptable if it was outside the current legislative requirements. In the end, these are freely transacting people doing business. Any party to the transaction is able to choose whether the terms are suitable for them, or not. But Fonterra, I am assured, is operating within New Zealand legislation.”

The key point is that all transport operators who choose to conduct their business without written contracts specifying their own terms of trade, including payment periods leave themselves vulnerable to what is effectively corporate bullying.

Generally, in commercial transactions no provider of a service is compelled to provide that service and any party to the transaction is free to choose whether the terms are acceptable to them or not.

However, under contract law, written contracts place obligations and responsibilities on both (all) parties which are legally binding for the duration of the contract.