It’s no surprise to anyone that the oilfield market is fluid and ever-changing. Last year, Canada went from a high of more than 200 active drilling rigs at the beginning of the year, to a low of 24 in early spring. The next big move for Canada’s oilfield market is a large-scale development of its shale resources to help expand its production efforts.
With the seasonal demand for Canada’s oilfield services and growing development of shale resources, it is essential for oilfield service companies to have a consistent cash flow to operate efficiently. One common way many oilfield service companies do this is through accounts receivable factoring.
What is Accounts Receivable Factoring?
Accounts receivable factoring, also known as invoice factoring, is a financing solution used by oilfield service companies as a way to obtain working capital. Accounts receivable factoring gives companies access to cash that is normally tied up in their receivables. Instead of waiting 30, 60 or even 90 days for customer payment, receivable factoring provides immediate working capital.
How Does Accounts Receivable Factoring Work?
The process for factoring is relatively simple.
First, a business chooses a factoring company that fits their needs. It is important to select a credible factoring company that has experience in your industry and is scalable. This is important because a factoring line should grow as business grows.
Once a factoring company is selected, the business is quickly approved and setup. Typically the setup process is done in just a few days. Instead of sending the invoices directly to the customer, invoices are first sent to the factoring company. Typically, the factoring company advances 80 to 90 percent of the invoice total within 24 hours upon receiving it.
The factoring company then waits weeks, or sometimes even months, for payment. Once the payment is received, the remaining balance of the invoice total is remitted back, less a factoring fee.
Why Do Companies Use Oilfield Factoring?
Oilfield factoring works for many service companies as it provides them with consistent cash flow to keep up with daily operating expenses. Companies using factoring no longer wait for customer payments and have immediate working capital to catch-up on bills, meet payroll, invest in new resources, and more.With a fluctuating market like oil, steady cash flow is essential to keep a business running.
About the Author: Scale Funding
Since 1994, Scale Funding has provided invoice factoring services to oilfield service companies throughout North America. Our easy-to-setup factoring lines allow our customers to access the capital that is tied up in their accounts receivables. Our factoring programs range from $50,000 to $20 million per month, giving every business the ability to grow.
If you’d like more information about our services, email info@tcicapital.com or call 800-707-4845.
