Cash Flow is one of the biggest concerns in the Oil Field Services Industry. Because of the long collection period, many field equipment suppliers and oil services providers face a cash crunch and often times do not have the needed cash to pay bills or meet payroll obligations. Factoring can turn accounts receivables that may not be due for 30 to 60 days into cash. Most oil field servicing factors have experience working with operators, manufacturers, exploration service providers and suppliers making for a nice overall solution.
The industry is very labor intensive and the payroll expense can really add up in a hurry. Waiting for 60 days to get paid is really not an option for the smaller oil field services firms. Most of the companies that use oil field services companies are already familiar with invoice factoring as it has become so common in the industry. Once factoring is put into place your cash is available within one day of invoicing, which makes the payroll expense much easier to handle.
It all sounds good, but how much does the factoring service cost? In most cases the cost for factoring invoice will be around 1% to 3% of the invoiced total per 30 day period. If your customers pay around 45 days the average total expense would be around 2% to 4%. Often the oil field services companies eventually work this expense into the business model by pricing it into the jobs. This way, you're not providing free banking services for you customers.
Oil field services is a booming industry as more and more oil related firms look to outsource operational and exploration work. If cash flow was causing your company to slow growth or only take jobs that offer quicker payments, then you may want to take a look at factoring.