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1 . What Is Oil and Gas Factoring? →
2. How Factoring for Oil and Gas Businesses Work →
3. The Benefits of Oilfield Invoice Factoring →
4. Invoice Factoring vs. Other Financing Options →
5. How Factoring Companies Evaluate Risk →
6. Selecting the Right Factoring Partner →
The oil and gas industry is extremely competitive.
As a result, cashflow is the lifeblood that keeps operations running smoothly, fuels growth, and guarantees your business’s long-term viability. Yet, with the challenges that come with volatile commodity prices, lengthy payment cycles, and high operational costs, maintaining a healthy cashflow can be a formidable task.
That’s where oilfield factoring steps in as a financial lifeline, offering innovative solutions that empower businesses in this sector.
Oilfield invoice factoring helps businesses stay ahead of the competition by giving them fast access to their accounts receivable in order to immediately boost their cashflow. While other companies wait around for their invoices to be paid, those that use factoring have access to the capital they need, when they need it.
This comprehensive guide covers everything you need to know about oil and gas factoring. We’ll discuss how it works, how to apply, how to choose between the best oil and gas factoring companies, and, of course, how these services will benefit your business.
Oilfield factoring provides businesses with a reliable solution to bridge the gap between invoicing and payment receipt.
When you partner with an expert oilfield invoice factoring company like REV Capital, you gain access to immediate cash, streamlined operations, risk mitigation, and a growth strategy that keeps pace with your ambitions.
Learn more about invoice factoring with REV Capital.
Financial challenges are ever-present in the oil and gas industry. Fluctuating oil prices, influenced by geopolitical factors and supply-demand dynamics, create uncertainty. High capital and operational expenses are constant pressures, affecting profitability. It’s no surprise that these financial hurdles impact businesses of all sizes, from startups to established corporations. To succeed, it’s crucial to navigate these challenges effectively, and that’s where oilfield factoring can be a game-changer.
Essentially, an oil and gas company will sell their outstanding invoices to a factoring company in exchange for an upfront cash advance. Then, the oilfield factoring company takes responsibility for collecting outstanding payments from the debtors. Once the payment is received, they remit the remaining balance minus their service fee.
Without a factoring agreement, oil and gas companies are at the mercy of clients who may take 30, 60, or even 90 days to pay their invoices. Oilfield factoring grants them immediate access to the majority of the money they’re owed for a small fee. It’s a solution that addresses the needs of the present while helping prepare for the future.
Monetize your outstanding invoices for instant cash.
Oilfield factoring is a streamlined financial solution designed to alleviate cashflow constraints in the oil and gas industry. This process begins when a business applies for factoring services with an oilfield factoring company, like REV Capital. From there, this is what companies in the oil and gas industry can expect:
Once approved, the business submits its outstanding invoices to the oilfield factoring company.
The factoring firm then verifies the legitimacy of these invoices and, in most cases, advances up to 98% of the invoice value on the day it’s submitted.
Once the advance has been paid, oil and gas factoring companies then manage the collection process for outstanding invoices based on your agreed-upon terms
After all outstanding collections have been made, the factoring company will return the leftover holdback—minus a small fee (1% to 3%) for their service.
Oil and gas industry factoring provides a crucial remedy for cashflow fluctuations. By accelerating the receipt of funds through factoring, companies gain access to much-needed working capital.
Risk management is inherent to the oil and gas sector. Factoring acts as a buffer against potential risks by safeguarding businesses against late or non-payment from customers. Invoice factoring companies often assume the responsibility of credit checks on customers, reducing the risk of bad debt. This proactive risk mitigation helps companies in the industry maintain a steady financial position, protecting them from the financial pitfalls that can accompany defaults or delayed payments.
One of the notable advantages of oilfield factoring is its ability to scale with a company’s growth. As businesses in the oil and gas industry expand, their financing needs evolve. With oilfield invoice factoring—and the liquidity it provides—businesses can feel confident in their financial standing, granting them the freedom to grow and expand their operations as needed.
Efficiency is vital in the oil and gas sector, where time-sensitive projects and tight schedules are the norm. Oilfield invoice factoring simplifies the financial side of operations. With a professional factoring partner handling invoice collection and payment processing, businesses can focus on core operations and project delivery. This streamlining of financial processes reduces administrative burdens, allowing companies to operate at their best and allocate resources more strategically.
Oil and gas receivable factoring isn’t the only financing option available. However, in comparison, it might very well be the best. Here’s a more in-depth look at some of the most common alternatives to oilfield invoice factoring.
Businesses getting a line of credit from the bank is a tale as old as time. Unfortunately, just because it’s a tried-and-true practice doesn’t mean it’s a great one. This is especially true for newer oil and gas companies without substantial fixed assets.
Generally, your fixed assets are how a bank will determine whether or not it will grant you a line of credit. That's well and good if you have plenty, but can be challenging if you don’t. Even if approved, there’s no guarantee the money provided to you through said line of credit will be enough to meet your expenses, either.
ACH (automated clearing house) or MCA (merchant cash advance) loans might seem like a comparable alternative to invoice factoring services. They pay out cash quickly—typically within a few days—and have a lighter approval process.
The main difference? The fees. On both ACH and MCA loans, companies can expect to pay fees up to 60% of their initial loan. If the upfront fees are lower, they’re likely to find themselves paying the money back with increasingly high interest rates. Factoring for the oil and gas industry has lower fees, and you get the cash faster!
Another option to encourage more rapid invoice payment is offering “quick pay” discounts. They are exactly as the name suggests; a discount on the amount owed for customers who pay their invoices promptly.
However, this option has several drawbacks. First, short-changing yourself and the value of your services is not a viable long-term solution. Second, there’s no guarantee these discounts will actually incentivize people to pay, as many might prefer to hold onto their cash until they’re absolutely forced to pay their invoice.
Protect your finances. Sidestep high interest rates with our smart solutions for cost-effective financial management and savings.
The comprehensive evaluation process helps oilfield invoice factoring companies make informed decisions regarding whether to partner with a business in the oil and gas sector.
The aim is to mitigate risks and ensure a mutually beneficial relationship where both parties can achieve their financial goals.
If your oil and gas company is considered low-risk it will boost your chance of getting approved for factoring. This assessment considers:
When it comes to oil and gas industry factoring, the selection process is a two-way street. While, yes, the factoring company is going to decide whether or not to work with your business, you must also decide if you want to work with them.
Remember, they will have the responsibility of collecting your invoices and communicating with your customers. As such, it’s important to ensure they’re reliable, trustworthy, and understand your industry. Here are some things to keep in mind before entering into an oil and gas receivable factoring agreement:
You want a factoring company that provides exceptional service. This includes transparency and responsiveness, as accessibility to support is essential. You should also check their reputation and track record, ensuring they have a history of prompt and reliable funding.
Not all factoring companies work with every industry. Oil and gas businesses need to work with a factoring partner who understands the intricacies of the energy sector. Real-world case studies and success stories from businesses in the oil and gas industry that have benefited from oilfield factoring can be invaluable.
Would you rather have more money upfront or lower fees later? You can expect these aspects to vary, so choose one that meets your needs. Ideally, you’ll partner with a factoring firm that offers you fair value on both.
The qualification and application process for oilfield factoring is designed to be accessible and quick. Qualifications vary by company and industry, however, businesses in the oil and gas sector should be in a good position to qualify if it ticks these boxes:
To initiate the application process, a company seeking oil and gas industry factoring services submits an application online to a specialized factoring provider. This typically includes:
Once the application is submitted, the factoring company conducts a thorough evaluation to determine approval. If approved, the parties move forward to establish a factoring agreement, setting out the terms, fees, and the structure of the partnership.
REV Capital’s mission is to reinvent invoice factoring. We’ve earned our place as a leading provider of full-service factoring in Canada and the United States by always putting our clients first.
When you partner with an expert oilfield invoice factoring company like REV Capital, you gain access to immediate cash, streamlined operations, risk mitigation, and a growth strategy that keeps pace with your ambitions.
Our clients have 24/7 access to a comprehensive online portal for ongoing support, industry-leading customer service, and competitive rates—no matter your industry. We also support businesses with invoice management, credit underwriting, and collection services.
Don’t let financial constraints hold you back. Speak to a REV Capital Client Relationship Manager today to find out how we can help your oil and gas business reach its full potential.
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