How Invoice Factoring Helps Extraction & Construction Companies
September 26, 2018
Cash flow issues are near-ubiquitous in construction and mining; that’s just the nature of the beast. At any given time, you might have quite a bit of cash tied up in materials and supplies, with other contractors and subcontractors to pay out. Material prices fluctuate constantly, and budgets are never for certain. You might identify an opportunity to grow by buying a piece of equipment instead of leasing, but can you afford to tie up those funds or will it prevent you from taking on new work?
These are just a few of the issues keeping contractors and CEOs in the oil and gas and construction industries up at night. These are also two industries where banks are unlikely to want to play ball.
How can you move forward with confidence and grow your contracting or related business, even in turbulent times? Let’s look at a few cash flow and financing solutions that can make it possible.
What is the difference between purchase order financing and accounts receivable financing?
Purchase order financing and accounts receivable financing, or invoice factoring, are two different ways to solve the same problem. Having to turn work away because you don’t have the free cash flow to buy supplies for a new job can damage your reputation and keep other prospects away. It’s a serious impediment to your growth that can have lasting effects.
There are a couple of different ways purchase order financing can work. Both operate on the principle that a third-party is going to finance the purchase of the supplies you need to take on the new job.
In the first scenario, a purchase order financing company pays the supplier of the construction company for at least a portion of the supplies needed to do the job. The purchase order financer then collects on the invoice to the customer and charges various fees to the construction company for having provided this service. On average, you can expect to pay about 3% for the first 30 days that purchase order finance funds are in use, with various rates for the duration of the lending period. Of course, your personal and business credit, the credit of your customer(s), any collateral provided, and other factors can affect these rates.
The second scenario can give you more flexible financing by way of a line of credit backed by the purchase order financer. It’s a viable solution for those with poor credit, however you’re expected to pay a fee in addition to the line of credit rates you’re already being charged by the bank.
Invoice factoring works differently.
Instead of creating new debt, invoice factoring gives you instant access to funds you already earned on your previous jobs so you can move on and purchase the supplies for the next job without waiting for payment. There’s no personal or business credit check, and you don’t have to put up collateral. Repayment is usually completed once the first customer pays their invoice (at FundThrough there are multiple repayment options) so there’s minimal disruption to cash flow.
Want to learn more? Grab a coffee, get comfortable and check out The Ultimate Invoice Factoring Guide to answer all of your questions about this innovative cash flow and financing tool.
Read the ultimate guide on invoice financing
How does invoice factoring help companies in oil and gas, construction and related industries?
Extraction and construction companies are finding that invoice factoring is a flexible solution for the cash flow issues that restrict growth.
Take Woodland Enterprises, for example. For over a quarter of a century, the Alberta company has serviced the Peace region oil and gas exploration sector with facility and pipeline construction, plant shutdowns, turn-arounds, single/mutual well installations, pump jack assembly, and scheduled maintenance.
A small, nimble team of twelve, Woodland was able to punch above its weight by bringing in subcontractors as needed. In order for them to take on larger jobs and attract talent in the competitive space, those subcontractors needed to be paid immediately.
Banks weren’t willing to lend to small companies in the volatile oil & gas industry, so credit wasn’t an option for Woodland. Looking for a better solution, Woodland Enterprises contacted FundThrough and laid out their issues. Working together to identify their greatest cash flow gaps, FundThrough successfully:
- saved Woodland over $15,000 in fees compared to traditional financing,
- increased their cash flow capacity by $63,000
- reduced their time waiting for payment by 86 days
You can learn more about how Woodland Enterprises uses invoice factoring to build its business in this case study.
What should you look for in extraction and construction invoice factoring lenders?
As with any financing or cash flow solution, you want to avoid invoice factors that charge sky-high fees, require tedious and time-consuming paperwork, demand a minimum financing obligation or impose themselves too strongly in your customer relationships.
At FundThrough, we developed financial technology that enables our clients to access their finances in brand-new ways, getting around some of those troublesome issues like paperwork, sky-high fees or customer interference. Construction and extraction businesses will enjoy the flexibility of a self-managed invoice funding account, where they can access financing anytime and from anywhere with full customer support during the week. With a variety of financing structures available, FundThrough can handle any size or shape of cash flow gap slowing your business!
How FundThrough can help your oil and gas construction business avoid a cash flow crunch
“I knew that having my own company wouldn’t be easy. Some customers take 30 days to pay, some take 60 days, some take longer. In the meantime, I still have to buy materials. I still have insurance costs, gas bills, internet, labour. None of that stuff goes away. I have to balance everything. For me, FundThrough gives me the confidence and peace of mind when I bid on a new project, knowing that if I get the job, the financing needed is just a click away.”
– Mario Hernandez, general contractor
Online factoring at FundThrough uses technology to cut out the middleman and keep your fees simple and low. We integrate directly with your invoicing software (including Cortex), functioning like an invoice-backed line of credit that’s there when you need it, and costs nothing when you don’t.
Getting started is simple – FundThrough integrates directly with your invoicing and billing platform, whether you’re using QuickBooks, Cortex or Jobber (or another accounting platform) to pull a list of your eligible invoices ready for funding. Ask us about our preferred rates for partner platforms like Cortex and Jobber.
You manage your funding requests online in our user-friendly web app, usable on desktop or mobile. Funding an invoice is as simple as a few clicks, and you receive the funds in your bank account typically within 24 hours.
FundThrough grows with the pace of your business – as your revenue grows so does your access to capital.
Put FundThrough to work unblocking your cash flow
Fund your business today