Is it better to earn 100 USD today or 100 USD tomorrow? Is it better to earn 100 USD today or 200 in ten years? The value of money is a function of time.
“A bird in the hand is worth two in the bush”
The proverb above sums up hard truth anyone dealing with money has learned. Having resources at the moment is always preferable to having them only promised. The time value of money is a principle that states money available at the present is worth more than the same amount in the future due to its potential earning capacity
It's true in Talmudic texts, it's true in christian teachings from the 1500s and it certainly is true in economic texts from last two centuries. Time value of money is not negligible.
Many clever economists devised formulas to devise present value from future value, but it really is simple: PV=FV/(1+interest). Present value + earned interest on it is future value, therefore (given 10 % interest), if you wait for a payment for a year, you should be rewarded with 10 % premium.
Does it sound like something from finance and bonds and you are not in a habit of borrowing? Feels irrelevant? It isn't. Think about your invoices.
Every time you wait for someone to pay your invoice after you perform the service, you lose some value of the money owed. Every time you pay at a later date, you are slightly better off. You can use this information to evaluate contract terms and your investment decisions.
By remembering the concept of time value of money you can make more informed financial decisions that benefit your business in the long run. Cash flow is the king, as they say, and this is the key concept to improve it.