It’s hard to believe the oil and gas industry was vibrant and the outlook was positive as the WTI Spot Price finally broke through the $30 USD barrier in 2004, stayed in the $40 USD range for most of the year, and went above $50 USD in 2005. Fast forward to 2015, and many businesses are now ravaged by the same $40 to $50 WTI Spot Price per barrel. The industry is retrenching. Projects are delayed or cancelled. Service companies cannot get enough bank financing or supplier credit and are collecting accounts receivable in 60 days or more! 

The solution for many businesses is “invoice discounting”, which is a multibillion-dollar industry in the United States, Europe, and Asia, and it is now catching on in Canada. Invoice discounting, also called spot factoring, is a method of financing for start-up or growing companies. It relies primarily on the quality of receivables rather than the balance sheet of the business. It’s also a method of dancing for established companies unable to increase a line of credit with the bank.

Banks take accounts receivable as part of their security and provide an operating line based on a percentage of that amount. However, invoice discounters actually purchase invoices and give cash in exchange. This usually happens within 24 hours of the invoices being issued and verified.

Why is having alternative sources
of financing relevant now?

Invoice discounting is not suitable for every company, but for the majority, it requires common sense rather than financial acumen to realize the best way to create improved cash flow in recessionary times is to spread the risk. Invoice discounting is an opportunity to get the best of both worlds by using a bank and an invoice discounter. It doesn’t mean turning your back on your bank or your bank manager.

Why is having alternative sources of financing relevant now? Because, when all the cost cutting or spending in response the current economic difficulty is over, companies with sales-related funds will be ready to move forward. The astute realize they must have a cash surplus to finance the increasing needs of the business as it comes out of recession.

Alberta has seen the boom-bust cycle many times, but the world has changed, especially in the Middle East. No one can foresee the price of oil with all the geopolitical uncertainty. It is also difficult to believe the current government could raise corporate taxes, increase the carbon tax from $15 to $30, and create further uncertainty and more job losses with a royalty review.

The Interface Financial Group is there for oil and gas service companies. We made a strategic move a few years ago to become the only spot factoring company in North America to assist subcontractors in the construction industry, which will enable us to ride out the uncertainty as well.