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Debt Collection Strategy In Oil Facilities(for Oil Corporation)

Debt Collection, Oil & Gas March 4, 2021

We see this scenario all too often – were marked “net 30 days” and, for the entire shale boom, they were always paid timely or at least within the next month. But now your customers are asking for net 60, 90, even 120 day schedules, which your company simply cannot float.

This is the reality for many creditors with customers in the oilfield services industry today. However, not all is lost!  There is still money out there, just waiting to be collected – if you take the right steps.

Have a plan that incorporates realistic recovery economics.

With some customers, you may have been forced to negotiate COD payment arrangements. With others, they have simply disappeared and left you holding a half billion Naira in accounts receivable.

An effective collection starts with all parties being on the same page – this includes those both company and outside personnel (like Debt recovery Agent). Within the company, an initial collections strategy should be formulated incorporating multiple levels of personnel, from financial and operations leaders down through the accounts receivable and collections departments.

The plan should begin with prioritizing the collections, based on the size and age of the debts. Obviously, the economics of a large debt collection allow for more resources to be allocated toward it.  An older debt demands a different sense of urgency.  Due to statute of limitations issues, it might be wise to consult with Debt collection Agency at this early stage for older debts.

Additionally, the plan should incorporate a realistic sense of collectability in relation to the size of the debt. A small debt with a low percentage of collectability might be one that simply gets written off.  As the saying goes, often it is not worth sending “good money after bad.”

The location of the debtor should also be taken into account. A debtor in a foreign jurisdiction might be harder to obtain a judgment against, but more importantly, even if a judgment can be taken in Harris County, Texas (for example) it most certainly will be more expensive to enforce it in a foreign jurisdiction.  Your attorney can help you better understand the economics of collections outside of the state.

None of the above are meant to say to creditors: “Stop. Just give up.  It’s hopeless.”  On the contrary, these planning tips can actually help you secure an overall more fruitful recovery than with a simple all-out collections strategy.

Prepare to take action now – your customers might not be around if you wait longer. As in every boom economy, there were basically three types of companies that in dealt oilfield services during the shale boom:

  1. companies that took reasonable steps to insulate themselves from the inevitable down times, to the extent possible;
  2. companies (usually LLCs) designed to ramp up as quickly as possible, work as many jobs as possible, but always expecting that they would shut down and disappear the minute the money stopped rolling in; and
  3. companies with good people that worked hard but, for one reason or another – including the plunging prices of oil and gas – simply couldn’t make enough money to pay their bills.

With a predicted continued slide in the energy markets, some of your customers are undoubtedly closing up shop, especially those in the latter two categories. Each customer that closes its doors before your company makes a bona fide collections effort represents a lost recovery opportunity. In time, and if the market dips as far south as some predict, even the best companies in the first category above might be forced to shutter.

This was written by Demetri Economou and submitted in an online journal, Energy Law Today

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