Cash Flow and Income Streams


When you deposit a paycheck or pay a bill, you are involved in day to day cash flow. Cash flow simply means cash flowing through a business or household. It means getting income into the bank account before it has to go back out again to pay the bills.


The cash flow industry is a place where businesses and individuals get assistance managing their cash flow needs. The primary way the industry solves cash flow needs is by buying and selling income streams. An income stream is a future payment or series of payments, these payments are a financial obligation that one party owes to another. Most of the income streams that are bought and sold are held by private individuals, which means it is owed to a person or business and not to a financial institution.


This income stream could be payments owed to you by a person who bought your home or business and you hold the mortgage by providing seller financing. If you decide you need a lump sum instead of monthly payments and go to a bank to cash in those payments you probably could not convince the bank to help you.


Or perhaps you have future payments coming to you because of a settlement, pension, inheritance or lottery winning and want a lump sum for some special purpose now.


Another very common income stream is payments owed to a business when products or services are delivered and an invoice is sent. These invoices usually are not paid for 30-60 days but the business needs the money sooner so it can pay its own bills or purchase supplies or pay its employees.


A special marketplace called the secondary market is comprised of investors who are willing to buy all or some of your future payments for a lump sum now and they'll collect those payments over time. The person making the payments is not affected except that they have a different address to send the payments to.

Why People Sell Their Income Streams

1. Access. People want or need access to their money, sometimes for a serious need: pay off credit cards, long-term medical care, to settle a divorce, etc. Sometimes for a desire: a new home, vacation, new car, to start a business, etc. Sometimes just for peace of mind, they don't want to worry about collections or the person who owes the debt to them.

2. Interest or yield. People will sell their income streams, even for less than face value, because they know that with cash in hand today, they can start earning interest or yield. They can invest money this year and turn it into a much larger amount next year.

3. Inflation. Inflation eats away at the buying power of money. You can buy more with a dollar today than you will be able to in five, ten or twenty years. Over time, payments received will drop in real value.


Why People Buy Income Streams
Investment. Buying future payments is a form of investing and is very profitable. Investors always try to maximize the amount of income their money produces. Buying income streams is one way they can do that. There is some risk involved for them, and they have to wait a long time for their money, but over time they are usually successful.