Natural Gas Factoring Explained in A Simple Way

Maintaining strong cash flow is crucial to operate your business through the ups and downs of the oil and gas industry. Instead of waiting 30 to 60 days for payment from a customer, your company can create cash flow by selling your invoices.

Natural gas factoring is a short-term financing mechanism that supports business growth by obtaining early credit sales receivables from customers. Natural gas factoring is an activity in which the factoring company enters into a contract with its customers (assignors), individuals or companies engaged in business activities, whereby the former acquires from the latter credit rights related to the supply of services, goods, or both, at a determined or determinable price.

A natural gas factoring contract involves a contract entered into between one party (the supplier) and another party (the factor) under which the supplier may or shall assign to the factor accounts receivable arising from contracts for the sale of goods between the supplier and its customers (debtors) other than the sale of goods purchased for personal, family or household use.

The factor performs the validation of accounts receivable to verify the existence of the accounts receivable. It does this by contacting the buyer and seeks to validate:

  • The existence of the business relationship with the supplier.
  • The number or numbers of documents corresponding to the accounts receivable.
  • The net amount is to be paid after deducting possible returns or discounts.
  • The probable date of collection.

Once this is done, it acquires the credit rights through the assignment of the accounts receivable by the “assignor” supplier, which at maturity collects from the “debtor” buyer.

The notification of the assignment of the accounts receivable will be made in writing to the debtors and involves letting the debtors know that the supplier assigned the rights derived from the accounts receivable to a factor and that, therefore, the payment has to be redirected in favor of the factor and no longer be paid to the supplier.

. The factor performs at least two of the following functions:

  • financing for the vendor, including loans and prepayments;
  • account maintenance (administration) related to accounts receivable;
  • collection of accounts receivable;
  • protection against non-payment by buyers;

Once the due date for accounts payable arrives, the factor handles collection efforts. When payment is obtained, the factor retains a percentage of the original amount of the accounts receivable to cover possible losses or losses that may occur at the time of collection due to discounts or refunds from the buyer. Usually, this percentage is between 10 and 20%.

There are as many types of factoring as companies have needs, but in the field of natural gas factoring, the most popular are:


The client is not obliged to respond for the payment of the receivables transferred to the finance natural gas factoring company; or

With recourse

The client is jointly and severally liable with the debtor for the timely payment of the receivables transferred to the finance natural gas factoring company.