The financial reality for small oilfield service companies

Posted in: Factoring Companies, Invoice factoring, Oilfield Business Financing, Oilfield News- Jul 09, 2013 No Comments

Most oilfield service companies have serious on hand finance issues, and it’s not due to poor business management. Most of the larger oil and gas companies pay their invoices in 30-90 days, even though the contract is set for 30days net or less. We are finding out that oilfield service companies don’t have the financial reserves to wait for those payments. Some of these companies include

Acidizing & Cementing, Aggregate,  Conductor Services, Crude Haulers, Disposal Wells/Sites, Drillers, Drilling Equipment Suppliers, Environmental Clean Up, Equipment Hauling, Equipment Rentals, Equipment Rentals, Excavating, Excavators, Fishing Services, Flatbed Carriers, Flowback Testing, Fly Ash, Frac Sand Haulers, Frac Tank Cleaning, Frac Tank Cleaning, Gravel Haulers, Gravel Pit/Suppliers, Hot Shots, Logging, Mud Hauling, Open Pit Services, Open Tank Services, Pad Builders, Pad Builders, Paraffin Services, Paraffin Services, Pipe Cleaning, Pipe Hauling, Pipe Construction, Pipeline Inspection, Pit Clean Up, Plugging Contractors, Pneumatic, Pressure Washing, Refinery Maintenance, Rig Movers, Rig Transportation, Road Construction, Rousabouts, Scoria Pit/Suppliers, Site Preparation, Slickline Services, Spill Clean Up, Tank Manufacturers, Testing Services, Vacuum Trucks, Water Haulers, Water Purification, Welding, Well Servicing, Winch Trucks, Wireline Services,

along with staffing agencies that supply employees to the oilfields. Oilfield service companies have high financial demands and slow return on invoice payments, and the business owners feel it when they need the financial backing to continue everyday business growth. This typical situation puts oilfield service companies in a tough spot.

You would think that the oilfield service company would open up a standard line of credit with a bank so they can divert working capital into the business as needed. The idea is great, the process is not. Obtaining a typical line of credit is not easy for many oilfield service companies due to the banks requiring substantial collateral, clean balance sheets, and a lengthy business history. The reality is that most of these companies won’t meet those requirements. But, there is a solution. Invoice factoring.

A/R (Accounts receivable) financing, or invoice factoring has not always been popular. When invoice factoring started becoming popular stateside, many small businesses were taken advantage by start up factoring companies, and running off their customers with aggressive collection practices.

Today, invoice financing has taken a different course and now becoming one of the most used financial assets in the world.

Short of getting financed quickly, the entire process is easier then dealing with a bank..

Oilfield service factoring benefits

1. Quick cash flow: Your business instantly has access to money to expand your business, purchase material, pay employees, etc.

2. Growth: Pliable credit terms allow you to add more inventories and focus on sales, therefore growing your position in the market.

3. Stress free: The sale of invoices can be used to pay off current debt, which builds your credit rating. You can also get discounts on purchases, acquire inventory, or capitalize on growth opportunities.

The invoice factoring process is simple: The purchased invoice proceeds are sent to the business in two payments. The first payment (around  90% of the value of the invoice) is sent to you within 24 hours after submitting the invoice to the factoring company. The second payment, called the reserve, is sent to you, less the factoring company fee, when your customer pays the invoice.

Factoring companies don’t look at your credit, but they do look at the credit worthiness of your customers in which you can also view. Companies that have tax liens, recent bankruptcies, or debtor-in-possession (check out DIP financing with Transfac Capital) even qualify for invoice financing.

Invoice factoring is the best financial tool for stability and growth in small to midsize companies. Factoring lines are designed to increase as your sales grow. They also help smooth the cash flow cycle through periods of price volatility.

If you need access to cash to sustain and grow your oilfield business, invoice factoring may be the choice for you. There are so many choices in invoice factoring terms. Don’t let a financial block keep your business from growing.