How Oil Field Services Companies Can Use Invoice Financing
The oil and gas industry has experienced booming growth in recent years, creating an environment that stimulates expansion for oil field service companies. However, smaller businesses may be unable to take advantage of these opportunities without adequate funding. Here are some ways that invoice financing can help.
Solve Problems With Slow Payments
The majority of significant oil and gas customers require payment terms of 30 to 60 days, making it difficult for smaller service companies to maintain sufficient cash flow to handle business expenses and plans for expansion. Although you can offer a discount in return for prompt payment, larger clients may or may not take advantage of it, and this puts them, not you, in control of your cash flow. Invoice financing can remedy this difficulty.
Increase Your Cash Flow
Invoice financing involves selling your accounts receivables to a factoring company in exchange for the immediate cash that you need. This form of funding gives you the freedom to take on clients that insist on long terms of payment without negatively impacting your cash flow. Once you are approved, the factoring company typically advances you most of the amount of the accounts receivables and then sends you the rest minus its fee when the customer pays in full. This gives you a steady cash flow, the ability to take on slow-paying customers, and the means to continue to grow.
Most oil field services companies have no difficulty qualifying for invoice factoring. Your clients must have strong commercial credit, as factoring companies are more concerned with the creditworthiness of your customers than your own credit score. Additionally, your leadership must be experienced in the oil and gas industry, your invoices must be for delivered offerings only and unencumbered by liens, and your company should be free of legal and tax problems. Once you qualify, your financing line is flexible and can grow along with your company.
For more advice on invoice financing for oil field services companies, get in touch with Wexum.