How Can Oilfield Factoring Help My Business?
If you’re in the business of providing goods or services to oil and gas companies, there is a good chance you‘re experiencing payment terms that extend beyond 30 days. If you find yourself in this situation, the good news is that there is a solution – Invoice Factoring Companies. Such companies specialize in paying you up front for your work as soon as it’s completed. The oilfield factoring company deducts a small fee for this service and waits the weeks or months it takes your customer to pay. This up-front payment means you can now make payroll, cover operating expenses, and accept larger jobs without the concern of restricted cash flow. In addition to this access to working capital, following are several more reasons why Oilfield Factoring may be right for your business:
Oilfield Factoring Focuses on the Credit Worthiness of Your Customer
If you have been turned down for a commercial line of credit in the past, or you don’t think you would qualify due to credit blemishes such as past bankruptcies or tax liens, you’re in luck. Accounts receivable factoring is based on the credit of your customer, not your business. As a result, companies who do not qualify for a traditional line of credit will most often qualify for factoring. Additionally, if your company does have a line of credit, but encounters situations where the need for capital exceeds the amount the bank is willing to provide, factoring may again be a better alternative. There is generally no limit to how much your company can factor and as long as the work has been completed, your organization can sell its receivables to the factor for immediate payment.
Factoring Companies Handle the Collections
When an oilfield factoring company purchases your receivables, it also assumes the burden of collecting on those invoices. As a result, the factor provides the back office support of collections and removes it from your hands. This allows you to focus on more important tasks, such as growing the business, and also reduces the need to hire additional support staff. Furthermore, the factor’s experience in actively handling collections can oftentimes lead to quicker payments by your customers.
Oilfield Factoring Companies Fund Invoices Within 24 Hours or Less
Factors that are comfortable with the oil and gas business will have the proper processes in place to pay you for your invoices either that same day or the next day. However, it is vital to ensure that copies of all of your billing paperwork are submitted to the factor up front in order to avoid any delays. Still, not all invoice factoring companies have this level of comfort to provide quick funding, so it is important to ask questions when speaking with each working capital provider to ensure they will meet the needs of your business.
Factors Provide Free Credit Checks for New Customers
One of the primary benefits of factoring is to provide you with the ability to grow your business. One way to do this is to provide you with free credit checks on any new customers that you plan to work with. Some customers, Shell Oil for example, are obviously credit worthy. However, there are still some smaller “players” in the oil and gas industry that might not be as well known. Any reputable factor should provide you with free credit data on your potential customers. This will not only help you make wise business decisions, but it will also help to ensure the factor is ultimately reimbursed for the funds that have been advanced to you against your invoices.
Conclusions
Although the oil and gas industry has recently seen quite a contraction, business must go on. In a recent World Oil article, Kurt Abraham writes:
“And yet, the industry is exuding remarkable resiliency and creativity. In their commentaries, 13 members of World Oil’s Editorial Advisory Board show how the industry is coping with low oil prices via a variety of measures, ranging from technological innovation and collaboration, to improving human and safety factors. There is enthusiasm that technology and business creativity will lead the industry back to profitability.”
The recent slow-down in the industry simply means that there will be more opportunity for the businesses that weather the storm and continue to press forward. If accounts receivable financing sounds like it might be the right fit for your business, or if you simply have unanswered questions, feel free to contact us. We will be happy to have a discussion surrounding your business and its working capital needs to help determine whether factoring is the right fit for your business.