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The cash flow industry has evolved, rather than emerged, through the natural business cycles of change and evolution. The industry has its roots in two seemingly unrelated methods of finance -- owner financing and factoring.

Owner Financing

The first method of finance that led to the emergence of the cash flow industry was owner financing. In an owner-financed sale, a real estate seller accepts a promissory note as a portion of the purchase price. The note is then secured by placing a mortgage on the real estate being sold. The scenario described in the Cash Flow Industry Overview, in which you sold your home to your daughter, was an example of owner financing.

Homeowners and commercial real estate investors in the United States have used owner financing as a method of buying property since the early 1900s. However, it wasn't until much later that it became popular.

During the high-interest rate periods of the 1970s and 1980s, home buyers found it difficult to obtain affordable financing from banks. Interest rates and inflation had skyrocketed to double digits, making it almost impossible for people to sell their real estate. If a real estate seller was willing to take a down payment from the buyer and hold a mortgage note for the remaining balance, the transaction was much more feasible for the buyer -- and certainly more convenient.

By the time inflation drifted back down,  thousands of individuals were holding private mortgage notes. Individual investors and investment companies recognized a tremendous profit opportunity in those notes, and they began to buy them directly from sellers. These privately held mortgage notes are even securitized and traded on Wall Street.

The second method of finance that impacted the development of the cash flow industry was factoing, also called accounts receivable purchasing. Factoring dates back thousands of years, but it has evolved into a vary modern financing technique.

When a business sells a product or service to another business, it sends the second business an invoice in order to collect the money due. The first business can either wait for the invoice to eventually be paid or it can sell the invoice to a third party for a reduced amount. The latter transaction is called factoring. Businesses can use factoring to stimulate cash flow.

Selling a $20,000 invoice for $19,500 cash is an example of a factoring transaction. As a business owner, you have the opportunity to sell invoices that are owed to you at a future date for cash today.

Prior to the 1980s, factoring was used primarily in the garment, textile, and furniture industries and was available only to large companies. That all changed with the rise of the independent broker.

Clearly, the concept of selling an income stream has been a part of the financial services industry for many years. However, until the last decade, cash flow transactions were essentially limited to private mortgages and invoices.

During the 1980s, privately mortgage investors operated in their own exclusive sphere. They focused on mortgage notes and generally did not buy other income streams. And they usually targeted notes only in their local areas. In addition, private mortgage investors typically worked directly with private mortgage note sellers. Once in a while, an investor would come across a note too large to buy and would broker it  to one of the larger investment companies. However, for the most part, transactions involved direct relationships between buyers and sellers.

Over time, more individuals discovered the income potential in brokering private mortgage notes. A private mortgage broker could earn a good living simply by locating private notes and placing them with investors.

As more people got trained to take advantage of the income opportunity in brokering, the number of brokers multiplied. The availability of brokers, in turn, provided more investment opportunities for investors.

It was a win-win situation for everyone. Rather than tracking down notes directly, investors could put up investment capital and rely on brokers to bring them transactions, ,in addition, investors could do business nationwide rather than just in their local areas. The broker/buyer relationship created a profitabel situation for everyone involved. Today, most major private mortgage investors rely on brokers to bring them transactions.

The same process occurring in the private mortgage business occurred simultaneously in the factoring industry. Traditionally, factoring had been provided by major factoring companies, often subsidiaries of large banks. Factoring services were available only to companies with annual sales in excess of $100 million per year. For smaller companies, factoring services were out of reach.

Soon, a small group of companies recognized an opportunity in providing factoring services to small and mid-size companies and emerged as factors targeting businesses with annual sales below $100 million. But, just like private mortgage investors, their activities were originally focused on the geographic areas in which they functioned. And in most cases, factors dealt directly with businesses, not with brokers.

Eventually, some companies began to examine factoring brokerage as a career possibility. As was the case with private mortgage brokering, training programs helped to popularize the factoring broker as an occupational category. Today, many factoring companies which in the past dealt directly with businesses now depend significantly on brokers. As a result, the factoring broker is a thriving profession.

The recognition that brokers specializing in private mortgages and brokers specializing in factoring were essentially doing the same thing -- brokering future payments -- laid the foundation for what we now call the cash flow industry. Today, cash flow industry brokers -- known as Certified Cash Flow Consultants (CCFCs) -- work with more than sixty different income stream and are continually entering new markets and discovering innovative ways to provide new cash flow services to individuals and businesses.

See the Categories of Cash Flow section in order to see some of the more than sixty different cash flow instruments that can be sold for cash today.

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