Oilfield contractors and service companies go through cash quickly. Having a source of consistent cash flow is a key element to long-term success. That’s why many contractors turn to invoice factoring. The top benefits of invoice factoring for oilfield contractors include immediate access to cash, time savings, and more.
Invoice Factoring is a type of financing where a company sells its open invoices to a third party called a factor, or factoring company, for an immediate cash advance. Factoring is used by companies across a wide range of industries to improve access to capital.
The factoring process is very simple. An oilfield contractor will select a factoring company. When the contractor has invoices, they submit them to the factor. The factoring company will immediately advance a percentage of the value of the invoice to the company, generally 90 percent. The invoice is then sent on to the contractor’s customer for processing and payment. Once the customer pays the invoice to the factoring company, the remaining balance of the invoice, less a small fee, is sent to the contractor.
Oilfield contractors and services companies need cash to operate. Invoice factoring provides cash when it’s needed. Many contractors that use factoring will submit their invoices on a regular schedule. This ensures they receive the cash advance in their bank account on a specific day or days. The consistent advances are used to meet payroll, pay operating bills, or towards whatever expenses arise.
It’s no secret that oilfield service company operators work long hours. There’s usually not enough hours in the day to get work done. Contractors that use factoring spend more time working on serving their customers. This is because they aren’t spending time waiting and worrying about money, or calling a customer to see when a payment is coming. Instead of trying to figure out how to meet payroll or pay for equipment repairs, they are overseeing the work or finding the next job. Having a consistent source of cash from factoring eliminates the stress of waiting for payments.
Oilfield service contractors that use factoring do so because of the cash. What most of them come to rely upon besides the steady cash, are the value-added services they can access. A top factoring company provides clients additional services to help in running the business.
This is one of the most valuable services for oilfield contractors. Some factoring companies offer clients credit reviews on potential new customers. These reviews and analysis of payment histories are valuable when deciding to work with a new company. With normal payment terms ranging from 30 days to 60 days or longer, risking a month or two of work with a customer who can’t pay, is very risky. Credit review services reduce that risk and give operators the confidence they are working for a solid company.
Top factoring companies not only provide cash, but they also have professional accounts receivable management services. Factoring companies work hard to make sure their client’s invoices get paid in a timely manner. AR management professionals will have positive working relationships with the customer payables departments. These relationships ensure invoices and related documents are processed and paid in a timely manner, and any issues that arise are handled quickly.