Accounts Receivable Factoring for Small Businesses in the Oil and Gas Industry
An accounts receivable is a transaction between two businesses whereby one business sells to another on terms. Payment terms can vary depending on the party’s agreement, but net 30 is typical. An accounts receivable (invoice) is sent to the buyer once the seller delivers the product/service. This invoice becomes an asset of the sellers business and can be sold in exchange for cash. Accounts receivable financing allows the seller to get a high advance in the form of cash, immediately by selling the receivable to a third party. This is called Accounts Receivable financing.
Finding a factoring facility can be a daunting task. If you’ve never factored before, you’re going to hear terms and numbers and calculations that sound completely foreign. While a good factoring company should be able to explain everything in a way that makes sense, there’s one piece of the puzzle that you should have a very clear understanding of – the invoice factoring rates.
I read recently that the Affordable Health Care Act, also known as Obama Care, may unintentionally help spur a boon in the staffing industry. The impact of the Affordable Health Care Act is, of course, highly debated, and will likely continue to be debated long into the future. While I believe the trend towards more part time workers and temporary workers was already set in motion after the recession began in 2008, the outcome remains the same. The staffing industry as a whole has been given a bullish outlook by many market analysts. In fact, we’ve already seen a steady growth pattern over the last few years.
The Staffing Industry Is Growing. Will You?
BOOMER………… SOONER! BOOMER……….SOONER! Okay – sorry I’m still celebrating OU’s win over Alabama. I bet I got your attention though……. Small business owners…….you know who you are…….. There are a lot of small businesses out there that struggle at times with one thing……………..cash flow!
Three words to live by………..CASH IS KING! Say it with me………….CASH IS KING!
You might be building that customer base, delivering that product or service, generating revenue. But there’s one big issue………………you’re not converting you accounts receivable into cash.
It can take up to 30, 60, or even 90 days to collect your receivables.
Folks………….you cannot efficiently run a business if you do not have the cash needed to operate.
You can’t even take care of the most simple of day to day tasks:
Pay your vendors.
Make that all important Friday payroll.
Drum up more business………..yes business development costs money as well.
Yes…..my rant is leading to a suggestion.
Two words……………….invoice finance, otherwise known as factoring.
Factoring is a form of short term business financing where you simply sell your credit worthy receivables to a third party known as a factor. Advance rates vary but are typically around 80%.
Once the invoice is paid, then you get the remaining portion back less any applicable fees.
This is a great way to bridge the gap between when an invoice is billed and when the cash is collected.
The Benefits of an Invoice Finance Factoring Facility…………………
Here are some ways your business can benefit from obtaining short term financing.
- Short term business loans like factoring facilities are easily accessible.
With the advances in technology, many banks and small business lenders have made it fast, easy, and efficient to obtain small business financing such as factoring facilities. In some cases it can take only a few days. In many cases, there is very little paperwork required.
In fact, if your business uses a factoring facility through a small business lender or factoring company, and you request a credit limit on one of your customers, you could get an approval in as quickly as 24 hours (depending on the strength of the company).
- Short term loans are just that…..short term. You as a business owner are not indebted to a bank or lender for a significant amount of time.
- Depending on the type of financing you go after, it doesn’t always break the bank (no pun intended).
If you obtain a invoice finance factoring line, then you may only pay fees based on the outstanding invoices.
If you factor invoices related to strong credit worthy customers that could pay quicker, then you may save some money on the fees paid while improving cash flow.
In my tenure in the commercial finance industry, I’ve seen a great number of businesses that benefited from the use of short term financing and invoice finance factoring facilities all the while keep fees to a minimum.
- Short term business loans and invoice finance factoring facilities can provide relief when your cash flow is tight.
There has been numerous times where I have seen a lot of small businesses waiting for a large invoice to be paid resulting in constrained cash flow. This is where an invoice finance factoring facility can help alleviate that strain.
Proper cash flow management is a vital in successfully running your business. Investing in an invoice finance factoring facility can really help make managing your cash flow easier. Beyond that though, making sure you have a quality customer base is important as well. If you own a small business and you find that these two things you have a hard time with, then hopefully following some of the benefits mentioned above convince you into investing in an invoice finance factoring facility. It can help you get your business back on track.