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 invoice factoring offers one of the easiest and fastest ways to access cash — especially when stacked against traditional options such as bank loans. Whether your business is in Fort Worth, Houston, Midland/Odessa, or even outside Texas in some other part of the country, oilfield factoring could be a fit to boost your cash flow and give you access to working capital quickly.
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 a matter of days and ahead of net terms. In essence, factoring is a tool that allows you to receive your invoice payments significantly earlier than the typical 30 to 60 or even 90 days wait time. By design, oilfield invoice factoring provides a quick and reliable fix for cash flow issues 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, receivable factoring is an offline business. However, the industry has evolved in recent years with innovative companies like FundThrough using technology to make oilfield 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 which invoices to factor, the factoring fee goes higher. The selective and spot factoring structures offer this flexibility.
However, online invoice factoring companies have streamlined the factoring process so that an oil and gas company can factor whichever invoices they desire while retaining access to competitive rates.
With an online invoice factoring service, 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.
Oilfield Factoring Offers a Way to Solve Cash Flow Challenges
Maintaining positive cash flow is critical to the success and growth of your business. Factoring invoices helps you solve gaps in cash flow without taking on new debt or giving up ownership and control of your business with equity or VC financing. You can learn more about improving your cash flow in our Ultimate Cash Flow Guide.
Do Customers Like Oilfield Invoice Factoring?
It’s a common question, and for good reason. No business wants its customers thinking it’s having cash flow issues and potentially pull their business.
There are a lot of reasons oilfield providers use factoring that don’t involve cash flow problems. Companies also use factoring to fund new business ventures or contracts, hire talent, invest in new equipment, and more. The fact is that many large companies are used to working with suppliers who use invoice factoring solutions, and have entire departments set up to handle these payments.
With the housekeeping matters out of the way, here’s how to factor an oilfield invoice online.
1. Invoice your customers/clients for the goods or services you’ve provided.
2. Open an online account with an oilfield invoice factoring company. You can set up a FundThrough account within minutes. Start here. Most invoice factoring companies would request a few business incorporation documents — Articles of Incorporation and tax information, for instance — to verify your business and ascertain that there aren’t any encumbrances, such as tax liens, against your future payments.
3. The next step is to provide the factoring company with the invoices you want to factor. Online factoring companies typically integrate with major invoicing software providers to make uploading invoices easier.
4. The factor reviews your request and sends you an invoice advance offer. FundThrough can advance you the entire invoice amount — minus the factoring rate.
5. On accepting the offer, the factoring company credits your bank account — and notifies your customer that it would receive the invoice payment if it applies to your factoring agreement.
6. Your customer pays the factored invoices to the factor, who deducts its fees along with the advance amount. The factor then sends the balance to your bank account.
A wide variety of oil and gas companies can access oilfield factoring through FundThrough:
Here are the main requirements for oilfield invoice factoring:
Like most things, the answer depends on your situation. But here are some benefits to 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. With oilfield invoice factoring, 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.
Interested in possibly embedding FundThrough in your platform? Let’s connect!