The oil and gas industry has been growing rapidly in recent years. Many individuals with industry experience have capitalized on this opportunity by starting small companies in related industries, such as oilfield transportation, fluid hauling and saltwater disposal, and others.
However, managing and growing a business in the oilfield services industry is not easy. While many business owners have technical and industry knowledge to manage operations, few have the resources manage their cash flow.
This problem may sound trivial, but many financial difficulties originate from cash flow issues. If left unmanaged, these problems could threaten your company’s survival.
Cash flow problems hurt your business
Most oil and gas clients demand payment terms – the option to pay invoices in 30 to 60 days – when you sign a contract with them. This practice is common in the industry, and most clients are adept at negotiating those contractual terms.
The problem is that many small oilfield service companies can’t afford to wait up to two months to get paid. They don’t have the financial reserves to pay company expenses for a couple of months while waiting for clients to pay.
Some companies handle this problem by delaying supplier payments. This strategy, however, can backfire and lead to suppliers that refuse to work with you unless you pay quickly – often in advance. In the end, if you have many suppliers, you may end up juggling too many payments and, ultimately, face financial trouble.
There is a better and easier way to solve this problem – permanently. You can finance your oilfield service company using receivables factoring, a business financing tool designed to solve cash flow problems.
Financing your receivables
Imagine if your oil and gas customers paid invoices in a couple of days, instead of taking up to 60 days to pay. If your company is like most companies in the industry, you would not have cash flow problems because you would have enough funds to pay your employees, suppliers, and other business expenses.
You can accomplish something similar by financing your receivables, and it does not require your clients to pay sooner. Rather, you partner with a factoring company who finances your receivables from creditworthy customers. The factoring company provides you with an advance payment on your invoices and holds the invoices until your client pays.
Factoring invoices enables you to offer terms to clients without risking cash flow problems. You can use factoring to improve your cash flow and grow your business.
Easy to use in your business
Implementing a factoring solution is relatively easy and can be used by most companies in the industry. The factor finances your invoices in two installments. The first installment covers about 80% of the gross value of your invoice and is wired to your account as soon as you have delivered your products/services to the client. You get the remaining 20%, less a finance fee, once your customer pays the invoice in full on their regular payment terms.
The most important requirement to qualify for this type of funding is to have creditworthy commercial clients. This requirement works to your advantage because most companies in the oil and gas industry have performed well in recent years and enjoy good commercial credit.
Gain a strategic advantage
Using invoice factoring can give your company a strategic advantage. Unlike most conventional finance solutions, factoring lines do not have fixed financing limits. Rather, the limit is based on the value of your receivables, the credit quality of your clients, and your invoice diversification. The line can grow as your revenues grow, without having to repeat the whole underwriting process.
This solution provides a strategic advantage to companies that are growing quickly and need a flexible financial solution to support their growth.
Get more information
We are a leading factoring company and work with companies in the Oil and Gas industry. For information, get an instant quote or call (877) 300 3258.