Crude oil futures are enjoying a strong resurgence, with prices reaching levels not seen in two years. West Texas Intermediate, the state’s benchmark, has averaged $54 per barrel in 4Q 2017.
Drilling activity is also rebounding. Crude oil production has hit a peak last witnessed in 1983. So, does this mean everyone is singing “happy days are here again”?
Yes… and no.
The 2015 oil price plunge proved devastating to a large number of energy-related companies, be they exploration, production or service. Particularly hard hit were smaller outfits. Many had to cut operations, expenses and personnel to a bare minimum simply to survive. Now that the nation’s oil & gas industry appears well on its way to recovery, a number of these firms are still struggling to catch-up.
One way these smaller companies have tried to survive is to delay payments on invoices for as long as possible. Rather than paying in 30 days, they would stretch out payments to 60. Then 60 days became 90. Now, some vendors have reported not receiving payment on their invoices for up to 180 days – six months after sending their bill.
Naturally, these delays caused a chain reaction throughout the vendor supply chain. Other companies that sold these energy-related companies products and services of all types now had troubles collecting on their invoices, hurting their own cash flows. Which meant that, in some cases, these vendors now face financial difficulties of their own.
Each day an invoice is not paid disrupts a vendor’s cash flow. This owed money is frozen, and can’t be used to expand the business, hire new employees, develop new products or services, or worst of all, pay the companies own invoices to other vendors.
What to do? There’s really only so much a vendor can do to force a slow-paying customer to timely settle an outstanding invoice. Press too hard, too often for payment and it could ruin future business opportunities. Raising prices to cover late payers could cause the company to lose work in a recovering, but still tight market. Writing off the debt cuts into profits and endangers the firm’s continued existence.
Oil & gas is one of the most cyclical industries. Even though better times are very close now, it’s not a question of if, but when the next bust will occur. While there’s not a whole lot that a business owner can do about existing late invoices, there is a way to protect yourself and your company’s cash flow when the next down cycle strikes.
Invoice factoring allows you to “sell” your invoices to a third party. This third party pays you upfront for outstanding invoices, giving you the cash you need today to run your business, and eliminating the worry and hassle of slow pay collections.
If you would like to learn more about how invoice factoring works and how it can help your business, simply call toll-free 1-855-219-6008 or email firstname.lastname@example.org.
Small parts suppliers and #fabricators that supply the #OilAndGas industry always get hit the hardest. #InvoiceFactoring from Charter Capital is the perfect way to bridge this cash flow gap. #Oil #PVF https://t.co/7kENydrWam?
— Charter Capital (@AR_Factoring) November 20, 2017