Privately held income streams, like the one created by your daughter’s payments in the previous post, can be bought and sold in the secondary marketplace.  In this marketplace, individuals and businesses can get cash NOW for their “future” income streams. 

So, looking at our example where you financed the home purchase for your daughter, could you get cash in exchange for the future payments owed you at your local bank?  Most probably not.  But in the secondary marketplace, many investors would give you cash today in exchange for the right to collect the payments over time.

Another example would be, you delievered $10,000 worth of merchandise to a customer along with an invoice requesting payment within 30 days.  Although the customer owes you money within 30 days, that money is not yet available to pay your bills.

Now suppose a third party offtered to give you $9,000 in cash today in exchange for your $10,000 invoice.  Would you take it?  You would if you needed cash today in order to pay employees and buy supplies for new orders.  It would make it possible for you to stay in business and keep your customers happy.

Transactions like these occur every day.  Individuals and businesses collect future payments or income streams sooner, rather than later, by selling them to a third party. 

The third party pays cash today for the right to receive payments over time. The third parties that purchase these income streams can be either an individual investor or an investment company.  Either way, they are willing to pay cash today for the right to receive future payments.  And, since they are giving up cash today, they will need to earn a rate of return on this money which is the discounted amount they pay for the income streams they purchase. 

Just about any income stream, whether it is a mortgage to be paid over 20 years or an invoice to be paid in 30 days (factoring of accounts receivable), can be sold to a funding source in the cash flow industry/secondary market.

I am passionate about the Cash Flow Industry/Secondary Market because it helps SMALL businesses (or the little guy) by bringing financial tools that have been available only to BIG business in the past down to small business’ level. And since I am definitely a champion of the little guy or underdog…I like that!

Most of us have heard of or are familiar with home mortgages being bought and sold so that over a 30-year period a homeowner’s mortgage company may change hands 2 or 3 times. Well, this is an example of “paper” being bought and sold in the secondary market and previously it has been in vast amounts of dollars such as transactions with mortgages (usually in portfolios).

But, now, with the development of the cash flow industry during the last 14 years or so, similar options are there for small business now. So much so that invoices as low as $50 (for a limousine service) can be factored. Now “that” is bringing it down to the level of the little guy!

So, two primary themes of the cash flow industry (which is trading paper in the secondary market), in my opinion, are:

1. Help for “small business” or the “underdog” by
2. “Leveraging” of available assets.

These are two themes that will be interspersed throughout this blog as they are in my life, business and beliefs (i.e. I am always hoping, helping and pulling for the little guy and believe that leveraging of their assets is a solid tool for the Little guy to use to his/her advantage).

Stay Well, Debra, YCFC

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