Just What Is a Cash Flow Note?

Just What Is a Cash Flow Note?
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A cash flow note is a legal and binding contract between a borrower and a creditor, where the borrower signs a promissory note agreeing to pay the creditor fixed sums at stipulated periods, usually monthly.

Most cash flow notes come secured with common forms of security such as vehicles, real estate, settlement payouts such as lottery winnings or other monies, making them safe options.

A typical cash flow note is the same as a promissory note. It contains the names and contact information of the parties, the amount involved, the length of the payment period, the security and the penalty for late payment or default. Some cash flow notes also incorporate clauses to determine problem or disagreement, aimed at resolution of possible future disputes.

Types of Cash Flow Notes

There are over 60 types of cash flow notes. The common ones are:

  • Real estate cash flow notes, or normal cash flows secured by property such as commercial building, residential house, automobile, boat or airplane. Such cash flow notes also come with a mortgage or trust deed that allows selling the property to collect the debt in the eventuality of default.
  • Structured settlements or financial instruments that compensate individuals injured owing to negligence by an individual or an organization. Such cash flow notes come secured with annuity payments provided by life insurance companies.
  • Purchase Order Cash Flow notes, where a business owner secures a cash flow note using purchase orders of credit-worthy customers. Such a security is inherently risky, for purchase orders can be cancelled and are not enforceable
  • Seller carry-back notes, where a business secures cash flow notes with debt-free business investments or assets
  • Factoring, or securing the cash flow note with accounts receivables due within 30 to 60 days of a business


what is a cash flow note

A cash flow note serves as an official “IOU” that can be bought and sold.

The person holding the cash flow note has the option of selling his or her notes to a third party, usually at a discount, and obtaining up-front cash, allowing the purchaser to collect the cash flows that result from the note. The discount is negotiable and depends on factors such as how urgently the seller wants up-front cash, the soundness of the security that covers the cash flow note, the credibility of the note issuer and more. Normally, cash flow discounts range anywhere between 10 and 60 percent of the note value.

The sale process of cash flow notes can be simple or complex depending on the type of cash flow. The sale of ordinary cash flow notes require only an agreement that reassigns ownership, whereas sale of high-value cash flow notes involving real estate might require opening an escrow account.

The methods of sale include identifying a third-party private investor through various channels, or even selling the note back to the issuer who may now have funds.


The contract or transaction of cash flow notes are private in nature and do not involve recognized financial institutions such as banks or credit unions. Cash flow notes are nevertheless legal payment contracts, representing a loan between two private parties. They are negotiable instruments, representing the promise of payment.

The key consideration is to ensure that the contract or the cash flow promissory note and the accompanying mortgage or paperwork related to the security conforms with the relevant state laws. This usually requires the services of an attorney.

Trading in cash flow notes is, however, a gray area. Some states require people trading in cash flow notes to have a broker’s license. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, however, allows up to three cash flow notes without a mortgage originator’s license.

Most people who understand what is a cash flow note regard cash flow notes both as a good means to realize cash and as a lucrative investment opportunity–but beware of the many frauds that try to take advantage of the private nature of cash notes and fool people by deception.


  1. “Cash Flow Promissory Note.” https://www.promissory-note.org/promissorynote/cash-flow-promissory-note.php. Retrieved April 24, 2011.
  2. The paper Source. “New Dodd-Frank Law Allows 3 Seller Carrybacks Per Year — With Strings.” https://papersourceonline.com/1593/new-dodd-frank-law-allows-3-seller-carrybacks-per-year-good-news-for-the-cash-flow-note-business/. Retrieved April 24, 2011.
  3. “Russ Dalbey’s Cash Flow Note Exposed.” https://www.information-entertainment.com/RussDalbey.html. Retrieved April 24, 2011.

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