Oil and Gas Factoring – A Few Considerations
As a result of the increased demand for domestic oil and gas production, service providers and manufacturers catering to this industry have typically seen significant growth. Despite this fact, traditional bank financing has not been any easier to obtain for many such businesses. Due to this lack of bank financing, invoice factoring has become a popular method by which to secure working capital in the energy sector. It’s worth noting that accounts receivable financing in this sector is not without its complexities, and as such, finding a factor that specializes in oilfield services is of absolute importance. Following are just some of the key considerations to keep in mind:
Payment Terms
Most factoring companies are accustomed to 30 day payment terms with their general clientele. Therefore, the typical 60 day terms that are seen in the energy sector can cause problems if your funding partner is uncomfortable with the additional time spent waiting to collect. It’s no secret that working with a financial organization that charges back invoices at 60 days simply will not do. Therefore, it is imperative that you select a factor that is familiar with the nuances involved in the billing cycle for oilfield service providers.
Paperwork
While most other industries include a fairly “standard” documentation process for billing, this is anything but the case for oil and gas service providers. Oftentimes, these providers are called out to a worksite at a moment’s notice and with no proposal or bid, the only approval for completed work is an invoice signed at the actual jobsite. And, in many cases, the customer’s payables department is unaware of the invoice and completed work for some period of time. Issues like these make it critical to work with a factor that not only understands, but is also comfortable with the limited and varying paperwork required for payment.
Flexibility
This characteristic may very well be the most valuable consideration when deciding between oilfield factoring companies. Due to extended payment terms, limited paperwork, and the constantly changing “environment”, it is more essential than ever to team up with a financial partner that is willing to work with you no matter the circumstances. For example, job approval requirements typically change from one customer to the next. In order to ensure timely payment and avoid additional work, your factor must have the ability and willingness to adapt to these changes.
While the above items are in no way a comprehensive list of considerations, they make a great starting point. If you’d like to learn more about how we can help, please visit our Oilfield Services page or Contact Us now. Our factoring specialists are standing by, all we need is a few minutes to learn more about your organization and its capital needs.