Majority of oilfield service companies have operating cash flow problems

Posted in: Oilfield Business Financing- May 20, 2013 No Comments

Majority of oilfield service companies have operating cash flow problems, and it’s not their fault. The majority of the big oil and gas companies pay their invoices in 30-90 days. Many oilfield service companies don’t have the capital to wait for those payments; they have their own bills to meet. Oilfield service companies have high cash demands and slow turnaround times, and business owners feel it where it hurts-their pocket books. This puts oilfield service companies between a rock and a hard place.
At first glance, it would seem that the company should use credit so they can put working capital into the company as needed. The principle is a great idea. Using a traditional line of credit is very difficult for many oilfield service companies because most banks require substantial collateral, clean balance sheets, and long successful credit report. Few oilfield service companies meet those criteria’s. But, there is a solution, Oilfield Factoring.
Oilfield factoring allows business, such as oilfield service companies, to capture capital that would have been locked up in slow payment of invoices. Factoring reduces the time it takes your business to get paid, so you can stay current on payroll and obligations.
There are three main benefits of oilfield factoring for oilfield service companies:
1. Cash flow: The business’ capital flow improves immediately as invoices are created and sold.
2. Increased Business: Easy credit terms give the business a competitive edge in its industry. Reliable cash flow allows more sales to large but slower paying customers.
3. Reduce debt and expand business: The proceeds from the sale of invoices can be used to pay off debt, get cash discounts on purchases, acquire inventory, or capitalize on growth.
The way invoice factoring works is quite simple: the factored invoice proceeds are sent to the business in two installments. The first installment (usually 90% of the face value of the invoice) is sent to you within 24 hours after submitting the invoice to the factoring company. The second installment, also called the reserve, is remitted to you, less the factoring fee, when your customer pays the invoice.
Factoring companies don’t look at your business’ credit, but they look at the credit worthiness of your customers. Businesses that have tax liens, recent bankruptcies, or DPI (debtor-in-possession) even qualify oilfield factoring.
Oilfield factoring is the perfect tool for stability and growth in oilfield service companies. Factoring lines are designed to increase as your sales grow and self-liquidate as they cool off, which helps smooth the capital flow cycle through periods of price volatility.
If you need access to capital to sustain and grow your business, oilfield factoring may be the choice for you.