Oilfield Factoring for Invoices | FundThrough

Streamlined Oilfield factoring.

WHAT'S IN THIS GUIDE

1. What is Oilfield Factoring?

2. How Does Oilfield Factoring Work?

3. Benefits of Oilfield Factoring for Oil & Gas Companies

4. How Oilfield Factoring Helps Oil & Gas Companies

5. How Can An Oilfield Company Factor an Invoice Online?

6. How to Choose an Oilfield Factoring Company

7. Types of oil and gas companies that can access oilfield factoring through FundThrough

8. How to Qualify for Invoice Factoring and OIl & Gas Financing

9. Is Oilfield Factoring Better Than a Loan?

Oilfield Invoice Factoring FAQs

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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.

What is Oilfield Factoring?

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.

How Does Oilfield Factoring Work?

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.

Recourse oilfield factoring: in recourse factoring, you agree to buy back invoices if the factoring company couldn’t collect the agreed payments.
Non-Recourse oilfield factoring: here, the factoring company takes on the liability of unpaid invoices. The added risk could mean a higher factoring fee.

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.

Benefits of Oilfield Factoring for Oil & Gas Companies

Fast cash: Oilfield companies typically get paid 30 to 60 days after invoicing their customers, which can cause cash flow constraints. Oilfield companies can use factoring as a tool to eliminate that wait time and have immediate access to the cash needed.
Fast approval: Oilfield factoring has significantly fewer paperwork requirements than bank loans, which can go as far as demanding a business plan. Also, a factor doesn’t consider your credit rating before extending you an advance. The combination of these factors makes it easier and faster to be approved for invoice factoring.

How Oilfield Factoring Helps Oil & Gas Companies

Growth: The ability to seize timely opportunities contributes to what makes a business successful. That’s truer for fast-moving businesses like oil and gas. Factoring provides oilfield companies with easy access to working capital and flexible terms.
Lower costs: In many cases, the factor, after buying an invoice, takes on the work of getting the customers to pay. This saves oilfield companies the resources they would typically commit to chasing invoices.
Flexibility when dealing with customers: A company that pays their invoices late doesn’t always mean they’re a bad customer. It could simply be a result of their operational reality — such as seasonality. With factoring as a tool in your back pocket, you can choose which invoices to factor and extend flexible payment terms to your customers.

How Can An Oilfield Company Factor an Invoice Online?

Invoice your customers/clients for the goods or services you’ve provided.
Open an online account with an oilfield factor. 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.
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 upload invoices easier.
The factor reviews your request and sends you an invoice advance offer. FundThrough can advance you the entire invoice amount — minus the factoring rate.
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.
Your customers pay 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.

How to Choose an Oilfield Factoring Company

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:

Fees: Factoring companies charge a percentage of the invoice amount when they offer you faster payments on your invoices. First, be sure that the cost doesn’t eat too deep into your margins. Second, beware of hidden fees. Ask the invoice factor for their fee schedule. You can find information about FundThrough’s pricing here.
Advance rate: This refers to the percentage of your invoice that the factor is willing to pay you. This rate depends on the factor. Higher advance rates are generally preferable. FundThrough offers some of the highest advance rates on the market, up to 100% of your invoice value.
Variety in factoring offerings: The best factoring companies have a suite of offerings that would fit different business setups. FundThrough, for instance, offers Express Factoring, which features a weekly rate of 0.5%, and Velocity Factoring, which charges a fixed monthly rate of 2.5%
Type of agreement: It’s best to have the flexibility to choose how and when you use invoice factoring. As mentioned above, technology-enabled factoring companies have revolutionized agreements such that you don’t need to be locked to long-term contracts to access the best rates.

Here are a few types of oil and gas companies that can access oilfield factoring through FundThrough:

Maintenance
Site exploration
Pipeline construction
Surveying and mapping of oilfields
Oilfield trucking companies

Oilfield Operators
Powder coating companies
Welders
Well drilling
Fracking companies

Global Pipeline partnered with FundThrough to accelerate its cash flow, making it possible for them to scale up on larger projects and make bids on projects worth millions.

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How to Qualify for Invoice Factoring and OIl & Gas Financing

Here are the main requirements for oilfield factoring:

Unpaid invoices: To qualify for oilfield factoring, you must have oil and gas companies as customers, and you must have invoiced them for the goods or services you sell.
Your customers must have good credit: Factoring companies prefer oilfield companies whose customers have a decent history of paying suppliers and vendors — since invoices are the only security in a factoring arrangement.
Your business must have no encumbrances against it: Encumbrances such as tax liens usually mean that the IRS or CRA has claimed your future payments cover unpaid taxes. Businesses with tax liens must first work out a plan for fixing any encumbrances before using invoice factoring.
A healthy gross margin: You’ll lose a portion of your income every time you factor an invoice. Consequently, factoring only makes sense if your business would remain healthily profitable after using invoice factoring.

Is Oilfield Factoring Better Than a Loan?

Like most things, the answer depends on your situation. But here are some benefits of factoring over a loan.

Factoring is generally a faster way to access working capital compared to a bank loan. FundThrough, for instance, can fund your bank account in as little as 24 hours. Loans are hardly that accessible.
While a loan could appear cheaper at face value, working with a factoring company reduces the cost of certain back-office operations such as customer credit checks and the logistics of collecting and processing payments. Factoring companies take on these responsibilities after purchasing invoices.

Oilfield Invoice Factoring FAQs

Your questions answered.

What is the difference between invoice financing and factoring?

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

Who can use invoice factoring?

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.

Do banks offer invoice factoring?

No, banks generally don’t offer invoice factoring. Banks are in the business of lending money. Factoring companies, on the other hand, purchase invoices.