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Why the Oil and Gas Industry Needs Factoring

by Peter Amundson

In the oil and gas industry, timing is everything. With market prices fluctuating and opportunities on the next horizon, it’s essential to be able to purchase new equipment and hire additional staff as and when you need to.  

It’s simply no good waiting up to 90 days for payment of an invoice while your cash flow is tied up and you’re prevented from moving onto the next opportunity. This is why oil and gas factoring is a necessity.  

Why Choose Factoring? 

If you’re in the oil and gas industry, you’ll find that factoring is a business-friendly alternative to traditional lending. There’s no debt to repay as it’s not considered a loan, and it suits the cut-and-thrust buy-and-sell transactional nature of oilfield business. 

Every invoice can be its own deal, with its own terms. Your accounts receivable (invoices owed to you) are sold to a factoring company that advances you a healthy percentage of the amount owed to ensure that you have a steady flow of working capital.  

Furthermore, the factoring company chases up payment from your debtors – freeing you up to focus on running your business. You can factor all of your invoices or just some. The flexibility to choose is yours. You also have complete freedom to spend the money as you see fit, without having to justify the expenditure to an investor or financial institution.  

Oil and Gas Factoring 

New growth opportunities are a hallmark of the oil and gas industry. When you strike oil or discover gas, it’s crucial to be able to move fast and scale up with staff and equipment to ensure that you meet the next opportunity head-on. There are many oilfield service providers involved in potentially lucrative projects that can’t afford to wait for the money to come through from a current job that has been completed.  

Companies who usually need oil and gas factoring include, consultants in Exploration and Production (E&P), contractors in extraction (including fracking) and suppliers in refining – not to mention related sectors such as security, construction and transportation (trucking).  

What we mean by ‘qualify’ is that factoring companies are assessing the creditworthiness of the clients you supply your goods and services to – not evaluating your business’ credit history.  

If your clients have a good credit history, then furnishing you with the finances against the guarantee of the invoice being paid, means that everybody wins. The oil and gas industry involves a lot of short-term contract work and costs that spike at certain stages of the job, making it challenging to manage cash flow.  

In the beginning, there are setup costs (including permits) and purchasing supplies. Then comes maintenance, followed by cleanup and repair costs. Cash flow management can become a headache if you are only getting paid every 60 days, but you need to make payroll every two weeks in between.  

Factoring For You 

Businesses in the oil and gas industry that are taking advantage of the convenience of factoring include haulers (hot shot, water, gravel, equipment, mud, flatbed, and frac sand haulers), and services (excavation, wireline, fracking, inspection, and employment services). In addition, businesses that do oilfield equipment rental, pipeline and road construction, acidizing and cementing, and environmental cleanup are also reaping the significant benefits of factoring.  

The list goes on, from land surveyors to welders. So no matter the size of your business, even if you’re a new business with a low credit score, there’s a solid chance you qualify for factoring. Your clients are ultimately liable for the payment of your invoice. 

Notable Advantages Of Factoring: 

  • By credit checking your customers for you, factoring companies ensure you trade with better quality customers
  • Cash flow is smoother, allowing for better financial planning
  • It frees up time to focus on the core drivers of your business by outsourcing your sales ledger
  • Factoring companies are often taken more seriously than smaller companies chasing up unpaid invoices on their own. 
  • Your business is protected against bad debt
  • Cash is released within a matter of days, allowing for capital investment in your next business project

The trick is to find a reputable factoring company that knows how to deal with your customers in an appropriate manner. Of course, the day-to-day, upfront dealings are still your responsibility to manage – it’s just the awkward conversations around ‘when can we expect payment?’ that is no longer your worry. 

Business Factors & Finance 

From the research and development costs associated with the oil and gas industry, through to its seasonal nature, it’s notoriously difficult to pay staff and purchase new equipment while waiting for existing outstanding invoices to come in.  

You are simply not afforded the headspace to be worrying about cash flow, when you’re on-site with your team who are expecting their remuneration. Businesses that find themselves in the oil and gas industry are often at the mercy of waiting for permits or construction to be completed on a road or pipeline before they can get to work.  

At Business Factors & Finance, we understand the complexities of the oil and gas industry, and appreciate that whether you’re a supplier of fracking equipment or offering excavation services, there’s volatility and unpredictability to your work that can make managing your cash flow a tedious guessing game.   

Even if you’re just getting started, we can expertly assist you with the professional management of all your invoices.

Striking oil isn’t just to be found in the ground: it’s to be found in the business partners we choose to help us survive and thrive. With Business Factors & Finance, you have a reliable team on your side. 

 If you want help improving your cash position with a broad spectrum of options, feel free to contact Business Factors & Finance at (800) 672-3844 or find out more about our factoring services on our website

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