Updated July 25, 2016
Oilfield services companies can improve work order processes and lower receivables by focusing on the basics.
A few months ago, we made a quick visit to an exploration and production company’s regional office in the Barnett Shale. The topic of our discussion was operating efficiency. During the visit, I noticed a three-inch stack of paper on the regional manager’s desk. Out of curiosity I asked him about the stack of paper thinking it was a series of reports corporate asked the field to complete. He said the papers were saltwater hauling vendor invoices that needed review. After lamenting the vendor invoicing process, he moved on to the purpose of our visit.
As I drove home, the image of the stacked invoices stuck in my head. I couldn’t help feeling sorry for the services companies who were probably wondering why payment had not been received. Many services companies continue to struggle with invoicing and need to improve the billing process. The solution is simple: Address how price books are used, how data is captured on site, and how invoices are processed.
Mention price books in an operations meeting and everyone in the room will begin to shift uncomfortably in their seats. Price books are perceived to be a hassle to maintain and they make it difficult for discount services to win work. These perceptions are common, yet unfounded. Price books can be a powerful tool for preventing customer price disputes.
An oilfield services client was suffering from a significant increase in days sales outstanding (DSO). After assessing the entire bid-to-bill process, we determined that inconsistent pricing was the primary cause of invoicing issues. Customers were receiving invoices with various rates depending on who was dispatching and working at the well site. After surveying more than 100 customers, the client quickly determined that rolling out regional price books would help eliminate confusion around pricing and invoice disputes. Customers were asking for consistent pricing!
The client developed new regional price books and posted them on a secure internal web portal. Dispatchers accessed the price books at the time of order to confirm pricing with customers and internal service staff. Office administrators used the information to validate pricing when completing work orders at the end of jobs.
Price book and customer contract maintenance was assigned to Accounts Receivable. Accounts Receivable found they could easily handle maintenance with the bandwidth gained from reduced disputes. Ultimately, the field managers saw the value in utilizing price books and eventually became price book champions in the regions.
Tool pushers often fail to capture essential information, including customer name, bill to address, lease/well number, AFE/PO number, contact number, county/parish, and company man’s name. Missing billing information leads to a large number of disputed invoices.
An oilfield services client was having trouble getting pushers to complete work orders in a timely manner. Completed work orders contained a large number of errors and company men signatures were delayed, often for weeks. The dispatch process was also inconsistent—call sheets and work orders were different for each dispatcher.
We developed a consistent set of call sheets for dispatchers to fill out when orders were placed. Pushers used the standard forms to capture information at the well site. After a short time, the customers’ company men became accustomed to the forms and were more comfortable signing upon completion of the job.
Once the standard forms were filled out and signed, the office administrator could enter the information into the system for invoicing. The amount of time researching pricing and the number of errors dropped significantly.
One of the major causes of delays in processing invoices includes the activities required for obtaining the (customer) company man’s signature. Most customers require the service provider to obtain their internal company man’s signature on the field ticket each time a work order is completed. Unfortunately, if the company man is not on site at the time the work order is complete, the salesman could spend countless hours chasing him down for the field ticket signature. This delays the receipt of the work order in the office for billing, which leads to delays in invoicing.
An easy way to solve this issue is by addressing the company man approval process during contract negotiation. A number of global services companies have negotiated email approvals for the majority of the services provided at the wellhead. Email receipt isn’t a difficult request since most company men have email accounts.
Disputes are quickly managed through email. Once email approvals are in place, electronic field tickets are not far behind.
Strategy for Success
The lowest average DSO that service companies generally achieve is 45 days. Achieving 45 is possible for any service company. Honoring pricing contracts, maintaining consistency with pricing, capturing correct information at the time of order, and delivering invoices in a timely manner are all crucial.
Trenegy has helped numerous service companies reduce DSO by following basic guidelines and adapting to industry trends. Contact us at email@example.com to learn more.