A debit contract provides that the producer pays a set price for processing and provides a guaranteed minimum amount of processed equipment. Many small oil refineries on the U.S. Gulf Coast have been built with project financing guaranteed by debit contracts. A debit contract is an agreement between two parties in which a service or property is provided by one of the parties for a specified period of time. A small business can use support as an indirect form of project financing by providing access to materials rather than real funds. Debit contracts are also called debit agreements. A small business can benefit from a debit contract if it needs equipment or service to start operating. For example, an aspiring contractor who has just opened a delivery business could provide service to a local carrier at a fixed price for six months. Services may include the use of vehicles, drivers and related transportation costs.
Whether the price of gasoline rises or falls over the six-month period, the new contractor always pays the same amount of money for each delivery based on the terms of the contract. If the small contractor expects gas prices to escalate, they position themselves to save money for gasoline over a six-month period with the conclusion of the debit contract. The conclusion of a contract with such strict restrictions has its drawbacks, but there are also advantages for these restrictions. By entering into a debit contract with the pipeline, the oil company has a form of transportation guaranteed at its discretion for one year; The pipeline has a form of guaranteed payment for one year. Regardless of the actual use of the pipeline throughout the year, this is a win-win situation for both parties, as equipment and funding are provided for both parties. A debit contract is a type of contract used primarily in the oil and gas industry. Although a number of large producers and suppliers of oil and gas dominate the oil and gas industry, some began as small businesses. Debit contracts provide some of the “guarantees” or guarantees needed to finance projects.
Debit contracts allow small businesses to make great strides in the oil and gas industry. The oil and gas industry mainly uses flow contracts, although there are periods when flows are used between manufacturers and materials suppliers. In both cases, debits are specialized agreements that define a product or service, use and service life.