WHAT'S IN THIS GUIDE
Run an energy-related business for any length of time, and you’ll quickly realize how access to capital separates winners from losers. That becomes even truer when you narrow things down to oil and gas businesses. First, the petroleum business‘s susceptibility to boom and bust cycles can cause unexpected cash flow bottlenecks. Add that to the fact that larger oil companies tend to be slow invoice payers. These combined realities highlight why smaller oilfield operators must have easy access to cash. Oilfield factoring offers one of the easiest and fastest access to cash — especially when stacked against traditional options such as bank loans.
Oilfield factoring is a form of accounts receivable financing in which you sell your unpaid invoices to a factor or factoring company at a discount in return for cash in as little as 24 hours. In essence, factoring is a tool that allows you to receive your invoice payments earlier than the typical 30 to 60 days wait time. By design, oilfield invoice factoring provides a quick and reliable fix for cash flow shortfalls that can inhibit business growth.
Invoice Factoring Is Not Debt
First, invoice factoring doesn’t constitute a debt in the way that a bank loan does. It is only an advance on the amount you invoice your customer for work you’ve already done. This means that factoring companies charge a factoring fee for the cash advance rather than an interest fee.
Online vs. Offline Factoring Companies
Traditionally, invoice factoring companies is an offline business. However, the industry has evolved in recent years with innovative companies like FundThrough employing technology to make invoice factoring more accessible.
Online factoring companies have introduced greater flexibility.
Traditional factoring companies usually demand an ongoing agreement to buy all your future invoices in exchange for the best factoring rates. That is, the factoring company selects the invoices to factor — and not you. This concept is called whole turnover factoring.
If you want the flexibility to select the invoices to factor, the factoring fee goes higher. The Selective and spot factoring structure offer this flexibility.
However, online invoice factoring companies have streamlined the process so that an oil and gas company can factor whichever invoices they desire while retaining access to competitive rates.
With online invoice factoring, there are just two main types of oilfield factoring.
Given the flexibility that technology affords, online factoring companies such as FundThrough are constantly working on different invoice factoring offerings that fit different businesses.
For instance, FundThrough’s Express Invoice Factoring offering allows you to get an invoice advance, which you’d repay in 12 weeks for a 0.5% fee per week. That gives you better control over how much you pay in fees.
With the housekeeping matters out of the way, here’s how to factor an invoice online.
While oilfield factoring can be a smart financing tool, it’s still important to select the right factoring company. Here are a few pointers for picking a factor:
Here are a few types of oil and gas companies that can access oilfield factoring through FundThrough:
Here are the main requirements for oilfield factoring:
Like most things, the answer depends on your situation. But here are some benefits of factoring over a loan.
Your questions answered.
Invoice financing is similar to factoring in that they both allow companies to turn outstanding invoices into cash.
However, with invoice financing, you’re still responsible for collecting payments from customers. Whereas factoring companies employ their in-house resources to collect payments on your behalf
Any business that provides goods or services to other businesses can use invoice factoring. However, it works best for companies who suffer cash flow strains due to slow-paying clients.
No, banks generally don’t offer invoice factoring. Banks are in the business of lending money. Factoring companies, on the other hand, purchase invoices.