Oilfield factoring is a financial transaction in which water haulers, rig movers, hotshots, roustabouts, welders, and more sell their invoices to a third-party factoring company. Texas and North Dakota factoring companies then collect payment on these invoices from your customers. Factoring is also known as “accounts receivable financing.”
One of the biggest reasons oilfield service companies choose to factor their invoices is because they want to receive cash quickly on their receivables, instead of waiting 30-60 days for their customers to pay. This, in turn, allows service companies like yours to build their cash flow, making it easier to pay their employees, purchase equipment, and grow their business.
That’s why Oilfield Factoring would like to provide you with the following information about how factoring works and how it can benefit your company.
Understanding A Cash Advance
When you factor your invoices, an Oilfield factoring company advances you a percentage of an invoice within 24-48 hours. The factoring company will then pay you the balance of your invoice when it collects payment from your customer, minus a small fee. Keep in mind that the cash advance rate you receive can vary depending on your company and who you choose to do business with. Your line of business, your customer’s credit history, and other criteria will ultimately determine the cash advance rate you receive.
Eliminate Long Waiting Times
The time it takes for your customers to pay can limit the amount of cash your company has to meet expenses and achieve other important financial goals. While there are a wide variety of advantages to Oilfield factoring, the main benefit is getting quick payment from your invoices. For example, if your company averages around $100,000 in receivables, each month, you may not have anything to show for it because your customers take longer than 30 days to pay. Oilfield factoring ensures that you receive that cash you need immediately. Even at a 75% advance rate, your business can count on having $75,000 in the bank at the end of the month, instead of zero.
Additional Benefits of Oilfield Factoring
Increasing cash flow is usually the main reason service companies factor. However, oilfield factoring provides a wide variety of other advantages as well:
- Factoring companies often provide free back-office support that includes managing customer collections. By eliminating this time-consuming burden, you can focus on other important aspects of your running your business.
- Factoring is based on the quality of your customer’s credit instead of your own.
- Factoring can be managed and customized to provide you with the necessary capital you need.
- Factoring isn’t a loan. This way you won’t have to worry about your business going into debt.
- With factoring, the amount of funding you receive can grow as your receivables grow.
Your Company’s Unique Needs
Factoring all depends on the unique business needs of your company. Some service companies factor all their invoices while others only factor certain customers that take longer to pay. The volume of invoices you factor can range from a few thousand dollars each month to millions.
Factoring Vs. Traditional Financing
Oilfield factoring is a quick, flexible way for service companies to build their cash flow. Below are some ways it differs from traditional bank loans or lines of credit:
Getting a loan from a bank can take anywhere from weeks to months and that is only after jumping through a variety of loops to secure one. Even worse, the amount you are likely to get is often far less than what you actually need. Time and funding amounts like this are detrimental to any business, no matter the industry. Most companies simply don’t have the time it takes to wait 90+ days before receiving the cash they need to make payroll, manage equipment, and take on new opportunities for growth.
Oilfield invoice factoring provides companies with essential cash flow within 24-48 hours of an invoice being verified. In fact, most factoring companies will pay up to 90% of an invoice amount while keeping the remainder in reserve until a customer pays.
Another factor that makes oilfield invoice factoring a better choice over bank loans is that a bank will look at your credit history before deciding whether you get the money you need. An oilfield invoice factoring company, on the other hand, looks at the creditworthiness of your customers before placing a value on your invoice. This allows you to get the money you need from a factoring company even if your credit history isn’t the best.
The ease and convenience you get with oilfield invoice factoring mean you will always get paid for your work and you will always have cash flow when you need it.
Get Started With Oilfield Factoring
If your company is in need of money to meet payroll, purchase equipment, and take advantage of important growth opportunities, get started today with our oilfield invoice factoring services. At Oilfield Factoring, we promise to help your business overcome the challenges you face in order to grow and succeed. Contact us at 1.866.834.7338 to get started and help your business run smoothly.
