Companies that are in the directional drilling and/or directional boring industry have an interesting predicament. Their customers are usually large utilities or oilfield companies with good commercial credit and a great payment track record. The challenge is that they pay slowly – they can take anywhere from 30 to 60 days to pay an invoice. In the meantime, you have to deliver the work and cover all your expenses – equipment, payroll and rent to name a few.  Few small companies can actually afford to wait that long for payment.

One way to deal with this situation is to try and accelerate payments by offering quick payment discounts to your clients. For example, offering 2% net 10 terms (2% discount if they pay in 10 days or less) is common. This will work for some, but many customers will chose to pay you slowly because they want to conserve their own cash. Another alternative is to use business financing to try and bridge the gap between invoicing and payment.  One alternative that has been gaining popularity in recent years is invoice factoring.

Factoring invoices solves the cash flow problem by accelerating your revenues. Factoring provides you wish a quick payment for your slow paying invoices, relieving your cash flow pressures and improving your company’s liquidity. It works by using an intermediary company, called a factoring company, that advances funds against your invoices. They pay you and then hold the invoice until your customer pays.  The transaction is then settled once your customer pays in full.

One advantage of factoring is that it’s easier to obtain than conventional business loans. This is because the transaction uses your invoices from strong customers as the main collateral.  Additionally, to qualify,  your company must be clear of legal and tax problems. This makes factoring a solution that can be used by small and medium sized companies that don’t have substantial conventional assets but have solid paying customers.

Factoring invoices can be a great solution for directional drilling / boring companies that have cash flow problems that stem from slow paying customers.