What Is A Cash Flow Note?

By Frank Desaille

Cash flow notes are documents that outline a 'promise' to pay or repay money that is owed. So, in basic terms, your mortgage is a cash flow note as is an informal IOU that you write out when you borrow money from a friend or member of your family. Although the terms of agreements may not always go by the name of cash flow note themselves, they all basically work to the same principles.

These notes outline the situation and the terms behind the borrowing or commitment to pay that has been agreed to. So, for example, a cash flow note that relates to an annuity that was given as part of a structured settlement agreement will outline the payments that will be made to the recipient, when they will be made and when the agreement will be done. A mortgage, on the other hand, will outline your borrowings, the interest charged, your repayment commitments and the actual mortgage terms.

There is actually a thriving market that trades in cash flow notes. You can, for example, sell your commitment or agreement here to a third party either to pass on a debt or to raise additional cash. This can be a particularly useful way of raising a lump sum of money when you need it.

Say, for example, that you agreed an annuity based structured settlement with an insurance company following an accident a few years ago. The terms of your cash flow note here state that you will be paid annual payments of $25,000 a year for five years.

Now you might have already had a couple of payments made under your settlement terms but you may decide that you'd rather actually have a lump sum to use now than wait for the rest of the payments to come through every year. So, you could, in many cases, sell on the settlement's cash flow note to a third party.

Here, the third party offers you a lump sum to buy your cash flow note. They will then get any benefits or payments that remain to be made from it. You won't get the actual real value of your settlement in the lump sum but this can be a useful way of cashing in your policy agreement for immediate money.

You can sell these kinds of agreements direct to the third party or you can go through a broker. Brokers here look to link up buyers and sellers of cash flow notes. Using a broker may be a good tip here -- if they work across the market generally then they could get you a better range of offers and prices than you could get for yourself.

Some businesses such as debt collectors also buy this kind of agreement. They may, for example, buy debts off a company that is having problems getting people to make their agreed repayments. In this scenario the debt collector then chases the individual or company for the money owed. Anything they get back here is then theirs to keep as they have already paid something to the original company to buy the debts in the first place. - 23211

About the Author:

Frank Desaille helps people learn about how to find cash flow notes at his website on cash flow notes.