Financing a Pipeline Maintenance Company

Although the natural gas and petroleum industry is doing very well, finding business financing for pipeline maintenance companies that serve this industry remains very challenging. Many are small or medium sized family owned companies that can have a difficult time qualifying for conventional bank financing because of their size. However, finding a source of financing is critical for growth, because pipeline maintenance companies are very cash intensive.

Most pipeline installation and maintenance companies run into cash flow problems because their customers pay their invoices in 30 to 60 days. However the pipeline maintenance company needs to pay a number of expenses much sooner than that - payroll needs to be met, rent needs to be paid monthly and suppliers need to be paid quickly. This creates a gap in the timing between revenues and expenses. And this gap can get many companies into trouble since they need to use their own cash reserves to cover expenses while waiting to get paid by clients. Ultimately, the company runs the risk of exhausting their cash reserves. At the very least, this will limit growth. If left unchecked, it could send the company into a financial tail spin.

There are three ways to handle and shorten the timing gap between revenues and expenses. You can accelerate your revenues by asking your customers to pay their invoices quickly. You will need to give your customers an incentive if you want them to pay sooner - a common incentive is to give them a 2% discount for if they pay an invoice within 10 days. A second approach is delay your expenses by paying your suppliers in 30 to 60 days. This may work for larger pipeline maintenance companies with good credit, but may not work for smaller companies. Most companies usually try to improve their cash flow by using a combination of these two strategies. While these two strategies can work, they ultimately leave you at the mercy of your clients and suppliers, who could change their minds at any time.

A third approach is to accelerate your revenues using invoice factoring. This strategy accelerates your revenues by using an financial intermediary, called a factoring company, between your company and your customers. The factoring company purchases your invoices for completed work (at a discount) and pays you upfront. This accelerates your cash flow and puts you in a better position to manage and grow your company. The factoring company then waits until your customer pays the invoice, at which time the transaction is settled.

One major advantage of factoring is that it's easier to obtain than conventional business loans. Factoring companies consider your invoices to be your most important collateral and can finance them, provided they come from reputable and credit worthy customers. Because of this, factoring is accessible to small and medium sized companies that would not traditionally qualify for bank financing. Factoring can be a valuable tool for companies whose biggest challenge is that they need their customers to pay sooner.