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Factoring is a process that helps businesses generate cash quickly and in the oil and gas industry, having enough cash on hand is critical. When working in the oil and gas industry, you sometimes have to wait on other companies to pay their bills. Sometimes, it takes somewhere between 30 and 90 days to get your invoices paid. In this situation, getting involved with oil and gas factoring can get you the money you need to improve cash flow.

How Factoring Works

When working in the oil and gas industry, receiving money from your customers can take some time. When you have outstanding oil and gas invoices, it is possible to get some of the money that you are owed before the customer pays through factoring. With this arrangement, you turn your unpaid invoices over to a factoring company in exchange for a cash advance. Then when the customer ultimately pays its bill, the factoring company receives the payment. The factoring company then pays you the rest of the money that you are entitled to after taking out a fee for the advance.

Who Uses Oil and Gas Factoring

A number of different types of companies in the oil and gas industry use factoring as a way to improve cash flow. For example, companies that maintain oil fields on contract use factoring. Companies that maintain oil pipelines also use this as a way to get cash. Companies involved in site preparation and maintenance also use factoring. Even survey companies that are involved in finding sites for oil fields use factoring to get their money before invoices are paid.

Advantages

Using factoring in the oil and gas industry can provide a number of benefits. For example, you don't have to worry about coming up with cash to pay for wages, research and development, permits, travel expenses and equipment. As soon as you get an invoice from a customer, you send it into the factoring company. As soon as you send the invoice and, you get the cash that you are entitled to. This provides consistent cash flow that you can rely on even if your customers take their time in paying their bills.

Considerations

Before getting involved in this type of factoring, it's important to make sure that you agree to terms that are favorable to you. You should expect to pay a percentage of the total transaction to the factoring company, but it shouldn't be so much that you can't afford it. This percentage will come directly out of your profit, so you have to make sure that it is not too high. If your invoices have a high profit margin built in, this will make factoring a more agreeable process for you.