The oil and gas industry has grown by leaps and bounds in recent years. This growth, in turn, has increased the demand for oilfield services provided by transportation companies that haul fluids and salt water. However, the spike in demand has also brought cash flow problems to companies that were not financially prepared to handle it.
Dealing with cash flow problems
Oil and gas companies commonly pay their invoices in 30 to 60 days, and many saltwater/fluid disposal companies have to accept this payment delay as a cost of doing business. However, most companies are not able to wait that long for payment, as they need funds to meet ongoing expenses, such as vehicle maintenance, vacuum truck maintenance, equipment purchases, and staff payroll. For many companies, this delay in payment is their major source of cash flow problems.
Conventional financing may not be the solution
One simple way to solve cash flow problems is to use business financing to cover ongoing expenses while waiting for customers to pay. However, qualifying for conventional business financing can be difficult. Most lending institutions require that your company have plenty of collateral, substantial assets, and a long track record of successful operations. Also, most banks view your current cash flow as the main source of loan repayment. These restrictive conditions usually rule out small and mid-sized companies.
There is an alternative solution for small fluid-hauling and disposal companies that cannot qualify for bank financing: oilfield services financing.
Factoring financing your invoices solves the problem
Factoring financing provides financing using your slow-paying invoices as collateral. Basically, a receivables factoring company advances a portion of your slow-paying invoices to your oilfield services company. This advance provides the working capital you need to meet ongoing expenses; but, more importantly, it gives you the confidence to take on new business without worrying about slow payments.
Simple to use
Most factoring transactions are structured to fund your receivables in two installments. The first installment covers 80% to 85% of your outstanding invoices and is provided to your company as soon as the work is delivered and accepted by the customer.
The remaining 15% to 20% (less the financing fee) is advanced to your company as a second installment after the customer pays the invoice in full. Please note that customers may continue to pay invoices on their regular schedule of 30 to 60 days.
For more information, please read “How does factoring work?”
Advantages of factoring financing
One advantage of a factoring solution is that it’s easier to obtain than conventional business financing. The most important qualification requirement is to have creditworthy customers because your customers’ credit acts as collateral for the transactions. Fortunately, most companies in the oil and gas industry have been doing relatively well and have good credit. Additionally, your company should also meet these criteria:
- Your company should not pre-bill clients
- Your company should not have major legal or tax problems
- Your invoices must be free of liens and encumbrances
- Company owners should have experience in the saltwater disposal industry and have good reputations
Financing company growth
Most companies use factoring to improve cash flow. However, the biggest benefit of factoring is often its use as a strategic source of financing. Unlike other types of financing, factoring lines do not have limits. The line can grow as your sales grow, as long as you work with quality clients.
Because of this flexibility, factoring financing is an ideal solution for fluid-hauling and saltwater disposal companies that have growth potential but are being held back by cash flow problems.
Get more information
We are a leading factoring company and work with fluid hauling and saltwater disposal companies. For information, get an instant quote or call (877) 300 3258.