Whatever role you play in the oil and gas sector — supplier, driller, manufacturer, surveyor or an entrepreneur — you know events unfold at a fast, often erratic pace. The oil and gas boom doesn’t keep business hours and when you need financing to jump on a new project, you can’t sit around and wait for the money that’s owed to you to come in.
This is where oilfield factoring comes in. To make your next move, whether that’s hiring workers to man an oil rig or purchase drilling, pipe or well equipment, you need a steady stream of cash flow. This is why oil and gas factoring, sometimes called invoice factoring, has become a preferred method of financing for many industry investors and owners.
How Does Oil and Gas Factoring Work?
The practice of account receivable factoring, which has been around for over a hundred years, has been adopted more in the past several years due in part to the flat economy.
In a nutshell, oil and gas factoring lets you use invoices from your clients in good standing as collateral. The financing company then essentially “buys” this invoice giving you up to 96% of its value usually within 24-48 hours. The client then pays the invoice to the factoring company within his 30- to 60-day window and everybody’s happy. You get your money right away without having to wait for your client to pay the bill. The factoring company collects an agreed-upon fee once the invoice gets paid.
Can I Go to a Bank for My Oil and Gas Financing Needs?
Yes you can certainly try but bank loans and credit are harder to come by these days with the economy at a standstill. Many entrepreneurs, startup companies or those with less than perfect credit – and even those with stellar FICO scores — may find it a challenge to secure credit from a traditional bank.
Banks require extensive applications processing and generally move at a bureaucratic pace. You can often wait weeks only to find out your loan request was denied. Account receivable factoring, on the other hand, is an expedited process by its very nature. Invoice factoring professionals work quickly and you can usually have the money you need within a matter of days.
As and oil and gas professional, you know the industry’s feast-or-famine nature. When an opportunity presents itself you either move quickly to seize it or you risk that your competitor will. Oilfield factoring is a safe, cost-effective way to get the money you need when you need it.