Time Value of Money - How Treasurers can eliminate hidden costs

True innovation comes when we question assumptions which are so fundamental that we are
often not even aware they exist. This is precisely what Steve Monaghan (LinkedIn bio) has done throughout
his career in PCs, then banking, and now as an advisor.

Steve shines a light on how we often destroy value by not looking critically at the timing of
everyday transactions, and how we fund the resulting delay. These seem obvious when you lay
them out:

1. Every time services are performed or goods are delivered, and they are not paid for
immediately, a time lag is created.
2. This time lag has to be funded. Every salaried employee performs at least part of their
work before they get paid: staff are funding employers.
3. These time lags are usually created by technology limitations: accounts receivable used
to be required because of batch invoicing, sending paper invoices in the mail, and
receiving cheques back.
4. When the technology changes, the processes often remain. Batch billing is no longer
necessary, and paper invoices and cheques are mostly a thing of the past. But accounts
receivable practices have not materially changed.
5. These cycles are usually funded by the party with the least bargaining power. Most of us
have used expensive credit card debt to cover the delay in receiving our salary.
Companies often view accounts payable as free funding, when it is frequently provided
by a supplier with a high borrowing cost.
6. Each delay involves risk.
Steve has spent a lot of time examining these cycles and putting numbers on their cost. The
results can be staggering.

The processes will not change overnight. In some cases, they should not change; in some, the
funding is efficient. But, if nothing else, this conversation should help you look at familiar
processes in a new light, and challenge some of those hidden assumptions.

The result may not be comfortable.

Listen on Spotify, or view video below.