Using Your Customers' Credit to Finance and Grow Your Oil & Gas CompanyPosted by Factor Funding Co. on April 6, 2012
What is Factoring?
Essentially, invoice factoring is a cash advance against the value of your outstanding receivables. For example, if you bill out $10,000 to a customer with a good history of paying their invoices, you could then sell the value of that invoice to a factoring company. The company would then advance you most of the invoice value, usually up to 80 percent and then begin collecting on the invoice from the customer. After the customer settles their account in full the factoring company would subtract its fee (generally a few percentage points) and then send you the remainder, closing the account.
How Oil and Gas Factoring Can Benefit You
Oil and gas factoring can offer several benefits to your company. For one thing, factoring is not a loan so you won't have to open a new line of credit or pass a credit check to qualify. Another benefit of oil and gas factoring is the speed with which you can receive your funds. On average, oil and gas companies can wait anywhere between one and three months to receive payments from their outstanding invoices! With factoring, though, you can receive your cash within a few business days. You're then free to use that money however you see fit for your business.
Things to Consider
While factoring is a great arrangement for many business owners there are a few things you'll need to consider. Make sure that you ask the company about the applicable fee before you agree to a plan. Fee rates may vary widely from company to company so it's wise to shop around. You'll also need to have customers with good payment histories in order to qualify for a factoring plan. Your clients' payment record is, in effect, your credit.
Oil and gas companies who need to get cash quickly can make use of oil and gas factoring to do so. By shopping around for the best factoring rate you'll be able to increase your profits in just a few days.