Top 5 Benefits of Factoring for the Oil and Gas IndustryPosted by Factor Funding Co. on December 2, 2014
The gas and oil industry continues to be very lucrative. People who own businesses related to this industry are enjoying record profits and an optimistic future as oil booms in places like Alaska and North Dakota flourish. However, despite the financial promise that comes with gas and oil today, business owners still must ensure that they have enough cash coming in to remain competitive and profitable. They can meet some of the common challenges that come with running an oil or gas business by using factoring to their advantage.
1) Bid on New Jobs or Projects
Businesses that must bid for projects or jobs need to have enough cash on hand to take on these new opportunities. If they lack a steady cash flow, owners will be unable to take on new work without compromising their current projects or failing to meet the deadlines of the new jobs they accept.
Rather than miss out on money-making opportunities, owners can use factoring to get the cash they need to expand their businesses. When they have the money on hand, they can bid on new work and increase their profits.
2) Buy Equipment and Supplies
Oil and gas businesses must have the right equipment to remain viable in this industry. If the equipment breaks or becomes outdated, it can only be a matter of time before businesses start to lose money and customers.
They also must have the necessary supplies available so that they can continue their work without interruption. Rather than delay a drilling project, for example, owners can buy pipes, drills and other supplies to continue their work and satisfy the deadline set by their clients.
3) Seasonal and Sales Fluctuations
Even as demands for oil and gas continue to increase, some fluctuations do exist in this industry. When the demand falls, business owners often see their cash flow suffer. When they are in need of cash until the sales pick back up again, they can factor their invoices and raise the money they need today.
When they factor their invoices, owners can receive most of the money owed to them by their clients. They can use this money to:
- Make payroll
- Buy supplies
- Expand their client base
- Pay outstanding utility or advertising bills
or take care of any other financial obligation. They do not have to account to the factor for what they plan to use their cash.
4) Slow Receivables Payments
Keeping a healthy cash flow can be challenging when clients are slow to pay their bills. A gas or oil business owner may have to wait several weeks or months before he or she receives a payment from the business' clients.
Because it can be impossible to wait that long, owners can factor their invoices and avoid the delay that comes with waiting for payment. They can have most of the money they need and continue with their work while allowing the factor to take over collecting on the outstanding invoices.
5) Credit Challenges
Given the hectic pace and competitive nature of this industry, it stands to reason that some business owners may have credit challenges that prevent them from securing a bank loan. If they want to bypass any risk to their credit, they can instead use factoring to get the cash they need.
A bank typically has stringent credit criteria that can be impossible to meet. Factors, however, do not check the applicant's credit, but that of the business' clients. If the clients pay their bills on time and have reasonable credit, the factor transaction can proceed without any problem. A business owner can in fact have poor credit and still be eligible for factoring.
The gas and oil industry holds a lot of promise for business owners and oilfield workers alike. When owners need money to remain competitive and profitable, they can meet these challenges by using factoring to maintain their cash flow.