Oil and Gas Factoring

The oil and gas industry can quickly cycle through production highs and lows. New technologies and fresh drilling zones present profitable opportunities for professionals at oilfield services companies, but the ups and downs of demand and other changes can present significant challenges. To stabilize their cash flow, an increasing number of oilfield services companies are turning to invoice factoring to maintain and expand their operations.

Here’s how oilfield services factoring works: When the oilfield services company completes its work for a particular customer for a set time period and sends out its invoice, that customer may not pay for 30, 45, or even 60 days based on the negotiated payment terms. Meanwhile, the oilfield services company must continue to make payroll, pay its suppliers, and pay other bills to keep operating.

To help close the gap between completing the job and getting paid for it, the oilfield services factoring company advances its client a large portion of the invoice value, potentially up to 95%. When the oilfield services company’s customer pays the invoice, the factoring company pays its client the remainder of the invoice value, minus a small factoring fee. The oilfield services company can use the advance for payroll, vendor bills, new equipment, more workers, or whatever it needs to maintain and grow the business.

Who Uses Oil and Gas Factoring

  • Companies that maintain oil fields
  • Companies that maintain oil pipelines
  • Companies involved in oil site preparation and maintenance

Oil and Gas Factoring Services are a Win-Win Solution

Cash flow solutions for oil and gas companies run the gamut, but most options require the business to take on debt, which can come with massive interest payments. Factoring is different because it’s a debt-free solution. As an oilfield services provider, you’re receiving advance payment, but your clients pay the outstanding balance to the factoring company.

This also helps maintain strong client relationships because you’ll no longer feel pressured to shorten the invoicing terms or resort to other measures to get paid faster. Many use their advances for daily operations, but financing oil and gas projects with invoice factoring is also a possibility. Again, it works well because it’s a no-debt solution, so companies can purchase equipment, supplies, and cover the costs of taking on new work with more financial confidence.

When Does Oil and Gas Funding Work Well

  • When you need additional capital
  • When you have difficulty securing a traditional loan from a bank
  • When business is slow
  • When your company has not yet established itself
  • When you’re finding it difficult to meet your oil and gas financial requirements

Oilfield Services Factoring Benefits

  • Improves oilfield services cash flow by turning invoices into immediate cash
  • Adds stability to revenues during seasonal ups and downs
  • Provides a debt-free financing solution
  • You receive the funds you’ve earned without waiting through long payment terms
  • Provides additional benefits such as credit checks and collections services
  • Retain good employees by ensuring payroll costs are covered
  • Overcome debt for your oil and gas company with factoring
  • Increase your cash flow for drilling, welding, and trucking services to support your oilfield projects

Interstate Capital works with a variety of companies serving the oil and gas industry, partnering with them to turn the funds sitting in their accounts receivable into cash in their pockets. With high advance rates and low factoring fee structures, Interstate Capital is ready to help oilfield services companies take their business to the next level.

Frequently Asked Questions

What are some ways to overcome debt for your oil and gas company?

Naturally, the best way to overcome debt is not to borrow in the first place, or, at the very least, to minimize the amount borrowed. However, not all debt is bad and most companies borrow at some point, either to enhance their growth or to stay afloat. Factoring is a good method of approach in either case because it increases cash flow without adding debt.

How to improve your oil and gas invoicing processes?

The primary goal of any invoicing process should be to minimize the time between the completion of work and when the payment comes in. To accomplish this, many companies shorten their payment terms to 30-day periods, rather than giving clients 60 days, 90 days, or more. Unfortunately, this can strain client relationships. Invoice factoring is one workaround because it meets the needs of the oilfield services company and its clients, but offering discounts for pre-payment or early payment can serve as a positive reinforcement tool, too. It’s also advantageous to use specialized invoicing software that takes care of sending out reminders and makes paying a bill simpler.

How to finance your oil and gas projects?

Many companies try to get bank loans to finance oil and gas projects first. This is probably the most cost-effective way to get funding, but it does require the business to be well-established, have good credit, and have strong cash flow. This leaves many with funding shortfalls. Lines of credit and credit cards can also work, but they also tend to have similar requirements and interest rates will typically be higher. For those who aren’t served by the most common financing methods, factoring may be the best solution.

How can factoring help my oil and gas company?

Factoring helps oil and gas companies by providing cash advances for their unpaid invoices. Most of the amount is paid to the company up front, though a modest amount is held back while the factor collects payment from the invoiced client. Once the client pays its bill, the remaining cash, minus a small fee, is paid to the company.

What are the benefits of oilfield factoring?

The greatest benefit of oilfield factoring is improved cash flow, since the company is no longer waiting on clients to pay their invoices. The advance can be used toward daily operations or growth. It’s also easier to qualify for than loans are, and the company doesn’t accrue debt. Plus, it’s up to the company to decide when to factor and which invoices to factor, meaning it can be tapped into on an as-needed basis. Factoring companies provide additional services, too. For instance, they’ll likely look into the invoiced client’s ability to pay, removing guesswork as to whether the bill will get paid, and giving business owners greater confidence when choosing which projects to work on. A select few like Interstate Capital also give their clients 24/7 access to reporting tools, options to get cash in as little as 24 hours and will connect their clients with other professionals who can help them with things like taxes, licensing and other needs.

How does an oil and gas company qualify for factoring?

It’s easy for an oil and gas company to qualify for factoring. Unlike the process for bank loans, your credit is not scrutinized. Instead, the factor will perform diligence checks on the companies receiving your invoices. While the factor will require some documentation and will need to do a bit of legwork to get you set up, it’s generally as simple as supplying some paperwork, especially when you choose to work with a factoring company that has been in business for as long as Interstate Capital has.