Learn More About What Factoring Can Do For Your Oil or Gas Company

Factoring is a process that allows a company to sell their accounts receivable for an upfront payment.  In the simplest of terms, factoring is a situation that allows a factor to bridge the gap between a company and their customers.  Under normal circumstances, a company issues an invoice to a customer and then waits between thirty and ninety days to receive the payment for that invoice.  Obviously, this extended period of waiting can cause cash flow problems for the company.  However, when a company chooses to work with a financial company that offers factoring, they are able to eliminate the period of waiting in between issuing the invoice and receiving payment for it. 

The way that a factor is able to bridge the gap between a company and their customers is by purchasing invoices from the company as soon as they are issued.  Normally, the factor will purchase each invoice for seventy to ninety-five percent of its face value, and the company will receive this money in less than one day.  The factor waits for the customer to pay the invoice and then returns the remaining balance to the customer (minus a small service fee).  This process can be repeated throughout the month, regardless of whether your company does thousands or millions of dollars in sales.

Although factoring is used by companies in many different industries, it is especially useful for any company in the oil and gas industry.  Whether you are a manufacturer or supplier of equipment (such as pipes, drill rigs or valves) or an exploration company, chances are that your biggest asset are your accounts receivable (invoices).  Under normal circumstances, you cannot utilize your accounts receivable, but factoring allows you to turn your accounts receivable into an actual cash flow.  This ensures that your oil or gas company does not have to turn down any jobs or opportunities for expansion due to a lack of cash resources!