When a business looks to partner with a factoring company, much of the focus is inevitably on the cost of the factoring program. This makes sense, a well-run business must account for where every dollar is going to make their operation as efficient as possible. However, though cost is a critical component of a factoring program, there is another that is as critical to the efficient running of your business – industry experience.
Oilfield Industry Knowledge is Important
Working with a factoring company that has experience in the oilfield is an extremely important component of a factoring program. Oil and Gas extraction is a complicated industry; many of the jobs and jargon are unique to the oilpatch, and there is ample opportunity for an inexperienced factor to get lost. A solid understanding of how a job fits into the industry, and at least some understanding of the technical processes involved are important to efficiently handling your accounts receivables with your customers. The bottom line is that no business owner wants to use their business as a guinea pig for a factoring company to learn their industry.
Invoicing is Key
Another business process that benefits greatly from your factoring company’s expertise is invoicing. Since invoice review is a standard service of a factoring company, if your factor has no idea what your invoices should look like they will have no idea if your invoices are accurate. Many jobs in the oilpatch require tickets to accompany an invoice to bill properly; this is something a factor would have to know about ahead of time. Or, an inexperienced factor might not know how to handle a disposal fee when they show up on your tickets, costing your business time and money.
In addition to the composition of many oilfield invoices, there remains the question of invoice terms. Factors inexperienced with oilfield factoring might not realize that a 60-day term in the oilfield is common, and some of the larger operators don’t pay any faster than 90 days. This means that factors who are used to 30-day invoicing terms may have trouble adjusting to the longer invoicing terms common in the oilfield. Additionally, many of the larger companies deal with oilfield specific invoicing software. Inexperienced factoring companies might process invoices inefficiently if they are unfamiliar with these tools, delaying the payments even further.
Experienced Factors Should Know Your Customers
More than just technical expertise, having a factoring company with extensive oilfield experience helps your business in many other ways. A factoring company that has experience in your industry will have a good feel for the companies doing work in your field and local areas. A factoring company that has worked with all the major players in your area would also know who the most reliable companies are to work for. Also, since every customer has to be underwritten, it is much more efficient to work with a company that has already worked with everyone and is familiar with their billing and payment processes.
Oilfield Factoring Stronger Than the Cycle
Finally, working with a factoring company comfortable with the oilfield is important when times are tough. Though the current predictions point to a positive market outlook for the next year or two, those who have been working in the oilfield for more than a couple of years know about how quickly the market can tighten. Since the oil industry is cyclical, factoring companies that are not as experienced in the industry might panic when there are market corrections, leaving your company without funding when it matters most. Oilfield factoring companies that have weathered previous downturns, however, will be much more willing to fund when the market goes down, continuing to be a strong financial partner in good times and bad.
