The past few years have been prosperous for the oil and gas industry in Canada. The industry has grown substantially, which, in turn, has helped the Canadian oilfield transportation services sector. Most oilfield fluid transportation and salt water disposal companies have seen substantial increases in demand and in their revenues. While this trend is good, it has also brought its own set of challenges – especially financial challenges.
The cash flow problem
Most oilfield service companies pay invoices in 30 to 60 days. This delay can be a problem for transportation companies that don’t have the financial resources to wait and need faster payment so that they can pay their own expenses.
Problems start when a transportation company that is growing quickly and not keeping an eye on its finances can overextend itself and run out of money. Without money, the company can’t pay for employee salaries, fuel, repairs, and other expenses. Business comes to a standstill.
Ultimately, companies are faced with the following dilemma: they risk financial difficulties if they offer credit terms, and they risk losing customers if they don’t offer terms. Obviously, both alternatives are bad.
The simple solution: finance receivables
One way to solve this problem is to use business financing to manage expenses while waiting for customers to pay. While getting conventional business financing can be difficult, an alternative solution has been gaining traction in the industry: invoice factoring. This solution accelerates the revenues tied to slow-paying accounts receivable. Invoice factoring provides your oilfield transportation company with immediate working capital to cover expenses while minimizing the worries associated with slow-paying customers.
How does invoice factoring work?
Invoice factoring works by partnering your company with a factoring company, who advances funds to your oilfield transportation company – using your invoices as collateral. The transaction is structured in two instalments. The first instalment, usually 80% to 90% of your outstanding invoices, is provided as soon as the fluids or other materials are transported and delivered to their destination. The remaining 10% to 20% is rebated as soon as your customer pays the invoice. Your customers do not need to pay sooner and can pay on their usual terms.
To learn more, please read “What is factoring?”
Financing your oilfield transportation receivables has a number of advantages over other solutions. One important advantage of factoring is that the line can grow with your transportation business – unlike other solutions, such as lines of credit, which have limits. The line can increase and match your growing revenues, as long as they are from qualified invoices.
Another advantage is that factoring is accessible to small and growing transportation companies that don’t have strong assets and have cash flow problems. This accessibility makes factoring an alternative for companies with growth opportunities that have been hampered by cash flow issues.
Time frame – How quickly can you get it?
Most receivables factoring lines can be set up fairly quickly. The application and due diligence process are fairly simple and can be completed in a matter of days. Usually, the first invoice can be financed in five to ten business days. Subsequent invoices can be funded in as little as one day as long as they meet the funding criteria.
Get more information
We are a leading factoring company in Canada and can offer competitive plans to oilfield transportation companies. For information, get a factoring quote or call (877) 300 3258.