Elk City, Okla., where Great Plains National Bank is headquartered, is dubbed by local boosters the "Natural Gas Capital of the World." It sits on the Anadarko Basin, one of the most productive natural gas reserves in North America. The area is also rich in oil - Oklahoma is the fifth-largest oil-producing state in the nation. One of the world's tallest non-operating oil rigs rises from the center of Elk City and dominates the skyline.

Companies engaged in horizontal drilling - a technique that enables single rigs to extract from multiple underground pockets over wider areas - have shifted here as they have across the nation from extracting natural gas made super cheap from oversupply to more lucrative oil production.

Great Plains has sought to take advantage of opportunities presented by area firms servicing a recent spate of new drilling by offering the contractors asset-based lending. The bank is using a Web-based tool from ProfitStars called BusinessManager that provides onscreen tracking of accounts receivable financing. ProfitStars is a division of Jack Henry & Associates. Other core providers like Fiserv offer competing solutions, as do newcomers like Ftrans and U.S. Bank-Visa joint venture, Syncada.

For Great Plains, that means cash loans made to oil field contractors. The software allows the bank to securely lend money to small gas and oil services firms, so these companies can more easily make payroll and more quickly finance their businesses.

The way it works is this: The bank buys the invoices that these mom-and-pop contractors would otherwise submit directly to big oil companies for ancillary drilling, extraction and transport work they've completed. So instead of waiting the 60-odd days it sometimes takes for checks from big oil to arrive in a local firm's lockbox or mailbox, the bank gives the company the cash it's owed immediately, or as soon as the oil field services are completed, and the related invoices are uploaded by the contractor via secure sign-on to the bank's BusinessManager-powered site.

For lending cash this way, the bank takes a fee from the local firm, plus 10 percent, which goes into a reserve savings account to act as collateral. The reserve is then made available to the oil field contractor once the bank receives full payment on the invoice from the big oil company that outsourced the work. Invoice submissions, cash deposits into local firms' checking accounts and entries of fees, loans and invoice payments can all be managed through a computer screen.

Great Plains is keen on the risk-reward of invoice-based financing, even though oil-patch economies, by their nature, are boom and bust. "It is profitable," says Jeff Waters, senior vice president of Great Plains and director of the commercial lender's energy-focused BusinessManager program. "We made gross profit after direct costs of about $1.7 million last year on $12.5 million of invoices purchased. That gives us a gross yield of almost 13.75 percent, which is way more than a typical line of credit would get us."

The bank has purchased over $382 million worth of invoices since Great Plains first began using BusinessManager in 1999, with "losses of just $116,000," Waters says, "which is a much better loss ratio than any credit line we've ever encountered."

While the program made up three percent of the bank's total assets, and 3.83 percent of its total loans, it generated 17.73 percent of Great Plain's total income for the calendar year.

The pitch to customers is to forgo sweating long lead-times on invoiced payments. "If you're a business owner, you're laying awake on Thursday night hoping there's going to be a check in the mail next morning so you can make payroll," Waters says. "ProfitStars gives them access to money as soon as they've generated that revenue."

Additionally, the bank can tell how its energy customers are doing financially "because you're able to see their revenues that come in on a daily basis," he says.

Payouts are booked on the bank's system as loans with zero interest rates. BusinessManager includes lockbox service, a "funding dashboard" that lists all the customers that have submitted invoices, and trend analysis reports, which can be made to track individual customers or numbers of invoices sold versus times prior. Loan officers can log in to view aged receivables on accounts they service.

An upgrade last year to a "gold" version of BusinessManager has given Waters desktop access to performing real-time trend analyses. "I can see what our yield is on a customer requesting a discount to see if there's a justification to lower that rate, based on his current profitability," he says.




BANK: Great Plains National Bank

PROBLEM: How to manage the boom-bust lending dynamics of a fossil fuel-driven local market?

SOLUTION: Deploy an accounts receivable lending system to monitor revenue trends of oilfield clients in real time.