Terminology
A Glossary of Cash Flow Terms

Accounts Receivable Aging Report - A report showing how long invoices from each customer have been outstanding.

Advance Rate - The percentage of the face amount of an income stream that a funding source will advance to a client.

Articles of Incorporation - A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.

Assignment - The transfer of the rights, title or interest of any debt instrument that is properly owned by another party.

Cash flow - The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.

Cash flow broker - Professional whose primary purpose is to unite income stream sellers with funding sources. They may operate as referral sources or as the primary liaison for cash flow transactions.

Cash flow specialist - A cash flow professional who brokers cash flow transactions or buys cash flow instruments.

Cash flow transaction - Occurs whenever a funding source pays cash to an individual or business in exchange for an income stream.

Collateral-based income streams - Cash flow instruments that are secured by collateral (something that is pledged as security to ensure the payment of a debt). If the borrower defaults, the lender has the right, by law, to seize the collateral.

Debt instrument - Future payment or series of payments, or a debt that one party owes to another party. Also known as income streams or cash flow instruments.

Due diligence - Research on a transaction, income stream, client, and/or payor. Due diligence may involve credit checks, appraisals, UCC searches, lien searches, or on-site visits with clients.

Factor - A funding source that specializes in funding accounts receivable.

Factoring - The purchase of a business' accounts receivable at a discount.

Funding source - An individual investor or an investment company that buys income streams.

Hypothecation - Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.

Income stream - A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

Institutional lenders - Savings and loan associations, local and regional banks, mortgage and finance companies, and commercial lenders.

Investment-to-value ratio - A measure of how secure a creditor's position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.

Loan-to-value ratio - A measure of how heavily mortgaged a property is vs. equity in the property.

Master Broker - Individual who has been certified and designated by the American Cash Flow Association to work with Diversified Cash Flow Specialists.

Mortgage - A written instrument that creates a lien by pledging real property as security for a debt.

Owner financing - A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.

Payee - Person receiving a payment or series of payments; a candidate to sell that income stream for cash. (Also called the seller or client.)

Payor - The person, company, or government responsible for making payments on an income stream.

Partial - Any part of a payment stream that is less than the full amount due. For example, 2 years of a 10-year note.

Portfolio - A group or package of income streams of the same type.

Privately held - Owed to a private individual or business rather than to a bank or other financial institution.

Seasoning - The length of time payments have been made on a loan or note.

Secondary market - The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash.

Seller - The person or company that is holding a debt instrument and wants to sell it.

Subordination - The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.

Time value of money - Concept that addresses the way the value of money changes over a period of time.

Uniform Commercial Code (UCC) - Standardized set of guidelines protected by law that set down how business transactions must be conducted.

Viatical - The assignment (transfer of life insurance benefits) and sale of a death benefit. In the beginning, viatical settlements were used primarily as a financial option for AIDS patients with a clearly terminal illness, who were unable to obtain the resources they need at a critical time, Eventually, victims of other terminal illnesses such as cancer and lukemia recognized the advantages of viating their life insurance policies to pay for current expenses.