The cost of not using Interface

Potential referrers and clients often ask us the cost of using IFG. There is a cost, of course (a small percentage of the face value of the invoice), but what is the cost of not using Interface? Here are few common examples:

Losing Supplier Discounts/Credit:

Many suppliers will provide prompt payment discounts – in reality these are penalties for late payment in disguise, but however they are expressed often these will be greater in percentage terms than the cost of using IFG. I just checked my latest power bill and the prompt payment discount was over 14% of the total!

Having ready cash can also create opportunities for ad hoc discounts. Many tradesmen, having presented an invoice for a given amount and expecting payment by the end of next month, would agree to a discount if you pay on the day.

But if you haven't got the cash to take advantage of supplier discounts because you are waiting for your debtors to pay you, then you'll be paying the higher amounts.

There are then further risks with suppliers in terms of credit being stopped or limited, and intangible risks around damaging the relationship.

IRD Penalties and Interest:

Late payments cause an immediate 1% penalty, with a further 4% after 7 days. A 10% penalty is made for non payment. Then there's interest.

Getting behind with the IRD also carries risks to your business future and can damage your ability to gain future credit.

If discounting an invoice to IFG keeps your business current with IRD, surely the process has immediately paid for itself.

Human Resources Costs:

The costs and risks of not paying staff or sub contractors on time are huge. For most businesses your staff are your business. Nothing will dent morale and lower productivity quicker than not paying the team on time. The best people will be gone pretty quick.

Opportunity Costs:

These are more difficult to measure but no less important, for instance:

• The importer who can get a $20,000 discount on their next batch of supplies from overseas or the manufacturer who can buy new plant at a receivership auction at $20,000 discount from the market value. If selling some invoices at a total cost of $5,000 meant they could take advantage of these opportunities, wouldn't it make sense?
  
  
• The contractor who can take on a big new long term contract which will double the underlying value of their business by $200,000 over the next year and set him up for further growth in the future, but will struggle with cash flow initially. If selling his invoices for 6 months for a total discount cost of $40,000 would allow him to successfully take on the contract, wouldn't it make sense?

In short, the opportunity can only be maximized if you have the cash to make it happen!

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