About Cash Flows
Thousands of Cash Flows (promissory notes of payment) are created every day. A lottery payment from a lottery corporation to a winner is a form of cash flow. In this manner, the lottery winner (the note holder) has a guaranteed legal promissory note from a registered organization that they will be paid a certain amount of monies over a certain amount of time. For example, you win the $1 Million lottery and receive 10 annual payments of $100,000.00.
In simplest terms, a Note is a written document that states a promise to pay. A note can be secured or unsecured. Another example is a real estate note that is created by a seller of a property whom carries back a mortgage on his or her home. However, the creator of the note may require a large lump sum of cash now to put a new down payment on a home, require funds to invest in a new business venture, pay off a business loan, or even pay medical bills. There are many motivations as to why people that are carrying notes look to sell their cash flow.
Each day cash flows affect our lives. Ever time you make your monthly mortgage payment, or fail to collect your past due invoices, or even purchase a lottery ticket, you are partaking in the world of cashflows.
Why People Sell Cash Flows
Per the example cited above, the seller of an income stream benefits from having cash now. Depending upon their circumstances, he or she can use the money for a number of reasons.
Plus, money is worth less in the future. The concept of "Time Value of Money" tells us that $1.00 today is worth a lot more than $1.00 ten years from now. Exactly how much more depends on the fluctuations in the value of the dollar as well as inflation and other factors.
A seller of an income stream may accept a lesser amount than the total amount of the payments due to them in exchange for cash now. But because of the Time Value of Money, they may actually save money in the long run, especially if they've chosen to invest in the cash.
Let's look at this from another point of view. Investors in cash flows benefit from a set rate of return on their investment. For many, they would prefer a guaranteed rate of return over an uncertain one, such as playing a guessing game by investing in the stock market. Nonetheless, it offers another stream of income they can add - guaranteed - to their investment portfolio.
Additionally, as these Funding Sources are buying notes rather than tangible items, they have no physical maintenance, management, or upkeep to worry about (as in the case of real estate purchases).
Hence, in a cash flow transaction, at the close of the deal the seller receives monies for all or part of their note, and the investor is left with a safe investment instrument leaving both parties satisfied with their business arrangement. A true win/win.
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