The time value of money, “is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim.” To break this down, say you are earning $15,000 today, or you can put it off for 3 years and get it at that time instead. Who would say no to $15,000 today? You now have the opportunity to increase the value of your $15,000 through investing and earning interest for future you to enjoy!
Now, let’s take this example and talk about construction finances. As you know, inBuild is software that is designed to automate the accounts payable process in construction. A draw, or pay application is the projects invoices, budget, and supporting documentation that is finally sent to the owner.
So, let’s say, if the owner of a development company obtains the draw and pays it, then the general contractor is paid, and then the general contractor is able to pay their subcontractors. If you are getting paid faster, then you make more money according to the theory of the time value of money.
The traditional invoicing process is complex, time consuming, and requires unnecessary data entry. In fact, 100% of the process is manual from steps 1-5:
- The invoice being forwarded to the project manager to review and cost code,
- The invoice is sent back to the bookkeeper
- It is then filed and entered into the accounting software and an excel budget,
- There are many emails back and forth between the project manager and the bookkeeper until approved
- A draw is then created.
inBuild speeds up this process by 92%. By using machine learning and data capture technology, we have created invoice automation. It automatically pulls pertinent data fields from the invoice as soon as it is received. By speeding up the invoicing and approval process, you too can increase your cash flow by the time value of money theory. Who wouldn’t want that $15,000 today?