Oil Transport Services Flowing with Accounts Receivable Financing
Posted on September 23, 2013 in Oil & Gas Industry
As one of the oilfield service companies worldwide, you are keenly aware that these services are the heavy lifting of the oil and gas industry. With demand for energy continuing to grow for developing nations, more companies may enter the industry due to entrepreneurial exploits. Additionally, the explosion of growth will continue for U.S. companies as foreign energy dependence decreases.
Advanced technologies used to locate and extract oil and gas will help oilfield service companies meet the demands. While this might be a good thing for the oil and gas industry, the same companies may have cash flow challenges.
In general, oilfield services involve support, production and logistical operations. These services also involve manufacturing, repairing and maintaining oil extraction equipment.
Seismic testing is important for the beginning stages of mapping and exploring a specific area. Drilling equipment and systems are used during this process to determine the geological structure beneath the surface where oil companies want to drill.
Your goal, if seismic testing is a specialized area, is to offer detailed reservoir descriptions that lead to better production and field development. Oil and gas companies rely on your expertise to use the right applications to interpret the data
Transport services may consist of land and water rigs that are moved from different areas. Generally, oilfield services in this category focus on providing transportation for water and crude oil. This service is crucial for oil and gas companies to meet the daily production demands.
It may surprise some who are not familiar with the industry to find out that all oil wells do not require straight down drilling. Images of oil spewing upward can be deceiving. This introduces the need for directional services, where oilfield service companies can drill in all directions – angled, horizontal and vertical.
Another deception for those unfamiliar with the oil and gas is the disconnect between high amounts of revenues and financing opportunities. The slowed process of generating revenue can create problems with meeting overhead expenses since operational services must be paid every day.
Lack of financial resources can stop the flow of oilfield services faster than closing valves will stop oil from flowing out. However, there is a way to purchase the necessary equipment for completing projects.
Causes of Cash Flow Problems
Primarily, cash flow problems arise for oilfield service companies with expenses for equipment, personnel and other essential items for the business. All must be paid on a regular basis even though a majority of oil and gas companies pay invoices between 30 and 60 days. This stark delay requires oilfield services to cover daily expenses until the invoices are paid.
If your company is like most, this delay can dampen your ability to meet the demands of the industry. Even if you have a cash reserve, it can quickly exhaust and create problems in service delivery.
Solution to Cash Flow Problems
Typically, traditional banks prefer to make loans to businesses that have stationary assets. Only under certain conditions are outstanding invoices and intangible assets considered good collateral. Therefore, the best solution for oilfield service companies is to work with a lender who understands the value of invoiced services in the industry.
Selling your services on open credit terms is good for oil and gas companies. For an accounts receivable factoring company, your invoices become tangible assets from which you can borrow. Cash flow problems are solved and you can continue daily operations without worrying about interruptions.
Your oilfield service company can experience many benefits through this form of financing, commonly known as asset based lending. Being undercapitalized and struggling with receivables that have good track records is leaving money on the table.
How Accounts Receivable Financing Can Work for Your Business
Basically, you apply for a business loan based on the value of current inventory and receivables. The amount available for you to borrow usually depends on the appraised value of the inventory and receivables. Accounts Receivable Financing differs from other sources of lending with competitive interest rates and a simplified application process. You may want also consider receivable finance as a funding source for expansions, acquisitions and equipment purchases.
The quick process provides the influx of cash you need for current oilfield operations. Other loan sources not only have an extensive application process, but they may also have borrowing limits that do not fit your needs.
This is an attractive form of financing for the growing oilfield industry. Most oilfield services prefer borrowing against receivables after being denied traditional loans. Others realize that this process is a lifesaver and decide to make this their first lending choice.
In general, factoring receivables for oilfield service companies is an innovative, flexible and reliable solution to ensure you can meet daily obligations. Your borrowing capacity is maximized to help with running a successful oilfield service company. Having adequate financial support through a steady cash flow brings stability to daily operations.
Increased activities in offshore drilling around the world will keep oilfield services on the forefront of the oil and gas industry. Essential to handling the growth is having skilled workers and sufficient financial resources. Make sure your company remains on the list of successful companies whose services are needed to provide domestic and foreign energy sources.