Navigating Payments in the Oil & Gas Industry: Insights in 2024
Late payments are a recurring challenge faced by businesses across multiple industries, but they can have particularly significant implications in sectors like oil and gas. In the UK, where the oil and gas industry plays a crucial role in the economy, managing late payments effectively is essential for sustaining operations, fostering growth, and ensuring financial stability.
This blog explores the impact of late payments in the UK oil and gas industry, key factors contributing to delayed payments, and strategies to address this issue proactively.
Several factors contribute to late payments in the UK oil and gas industry, making it a complex issue to address. One key factor is the intricate supply chain dynamics prevalent in the sector, characterised by multiple contractors, subcontractors, and service providers involved in large-scale projects. This complexity can lead to payment disputes, contract discrepancies, and administrative inefficiencies that delay payment processing. A leading international energy services company has recently been seen to be in a large amount of distress, with partial blame due to delays in advance payments on new contracts. This company is now suffering with a massive debt over $500 million and share prices have dropped, meaning a lot of uncertainty for its investors.
The fluctuating oil prices, and political changes has also influenced the payment culture in this industry. In 2022, due to the unexpectedly high costs of oil & gas prices, the UK government imposed a 25% Energy Profit Levy on the sector. This tax on the “exceptional profits of oil and gas companies” was put in place to help with funding for households facing rising energy bills. The tax was initially set at 25% but was increased to 35% last November, taking the overall tax burden for UK oil & gas providers to about 75% (BBC, 2024). The Chief Executive of Offshore Energies UK (OEUK), David Whitehouse, stated it’s “impossible to plan investment for the energy transition and the path to net zero” due to the political turmoil this sector has faced over the last few years. The effects of this tax have been felt by many businesses in the industry and chairman at one of the largest North Sea producers stated: “unfortunately, the UK government has turned the UK North Sea into a very harsh business environment”. The UK government has an ambitious agenda to boost energy security, improve customer affordability and cut emissions. According to OEUK achieving these three goals is possible and it would bring huge economic benefits. It is, therefore, vital that the government works with the offshore energy sector to ensure the security of this sector in the future. This will offer protection against supply chain failures which contribute to the late payment culture.
To navigate the challenges posed by late payments in the UK oil and gas industry, companies can adopt proactive strategies to mitigate risks and optimise cash flow management. Implementing robust contract management processes, clear invoicing procedures, and effective communication channels can help streamline payment processes and minimise delays. According to OEUK’s findings, there are inefficiencies in the ways “accounts payable” are processed in the oil & gas industry. The trade association found that 75% of companies have payment terms of 30 days, but only 45% of total payments comply with the terms and conditions all the time. Therefore, collaborating closely with suppliers and subcontractors to establish mutually beneficial payment terms, monitor payment performance, and resolve any disputes promptly can also foster stronger relationships and enhance payment efficiency.
Our team of experts have vast experience within the oil & gas industry. If you have questions about an outstanding payment, schedule a call with one of our friendly commercial debt specialists here or phone 01698 821 468.
Lynne is the Founder and CEO of Darcey Quigley & Co.
She is passionate and determined to help businesses get overdue invoices paid quickly.
Having worked within the credit management industry for over 27 years and ran UK leading commercial debt recovery specialists Darcey Quigley & Co for over 17 years, Lynne has helped businesses recover commercial debts from every continent across the globe.
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