Customer handles own collections (CHOCs)

Quick facts

CHOCs (‘Customer Handles Own Collections’) is a hybrid of invoice factoring and invoice discounting. It’s a disclosed (non-confidential) facility, like factoring, but with a CHOCs facility you continue to handle your own credit control, like invoice discounting.

With a CHOCs facility, you chase your customers for payment and use your own credit control processes, which is why also known as ‘Customer Handles Own Credit Control’ or CHOCC. In this way it’s similar to invoice discounting.

The key difference is that your customers pay the invoice finance provider rather than you. So it’s usually disclosed. (There is however a variant known as confidential CHOCS.)

CHOCs might be a good option if:

  • your business doesn’t qualify for invoice discounting by being too early-stage – you still have to show you have the capability to chase invoices
  • you prefer to avoid the extra admin costs involved with outsourcing credit control to a finance provider (as you would with factoring). This is especially relevant if you typically raise multiple low-value invoices – making for lots of customers who need chasing
  • you prefer to maintain relationships with customers – bear in mind that your clients will know you’re using the facility because they’re paying the finance provider, not you

Like all invoice finance, a lender will release up to 95% of the value of your invoices. The remaining 5% will also be made available when your customers pay.
CHOCs are suitable if you’d like to maintain a direct relationship with your client or for early-stage companies that don’t qualify for invoice discounting, as long as they can prove they have the in-house capacity to chase outstanding payments. They can also offer a more cost-effective option for companies with lots of small customers.

Invoice discounting 
Invoice discounting is the simplest type of invoice finance. It involves a lender advancing you money against unpaid invoices and charging a fee based on the value. This form of finance is suitable for bigger companies with a relatively high turnover as it allows them to secure funding against their entire sales ledger. 
Invoice discounting is confidential, so your customers don’t know you’re using their invoice as collateral. Your company remains in charge of its own credit collection. It’s also considered riskier so your lender may require evidence that your customers pay promptly and you have in-house capacity to chase outstanding payments. 

Invoice factoring 
Invoice factoring also lets bigger companies borrow money against their sales ledger, but it’s different to invoice discounting because the process is disclosed. The lender takes control of your credit collection and deals directly with your customers. They pay the lender, who then forwards you the balance less their fee. 
Invoice finance can benefit smaller businesses as it means they don’t have to chase their outstanding payments, although they have to prove to the lender they generate a reliable turnover. However, it may not be cost-effective for SMEs with fluctuating cash flows.  

Selective invoice financing 
Selective invoice financing lets your company borrow against specific invoices, rather than your entire sales ledger. This form of invoice finance is suitable if your company generates a significant proportion of its income from large, steady customers, and you only want to finance those invoices. Selective invoice financing can also help SMEs raise working capital if they have fluctuating cash flows, as borrowing against their sales ledger may not be cost-effective. 
Selective invoice financing comes in two forms: selective invoice discounting and spot factoring. 

Selective invoice discounting 
Selective invoice discounting works in the same way as invoice discounting, where a lender advances you money against outstanding invoices. The main difference is you choose the invoices you’d like to finance rather than your company’s whole sales ledger. As such, it’s useful for companies seeking to borrow against invoices issued to a few big customers instead of a lot of smaller customers.  
Selective invoice discounting is also similar to regular invoice discounting because it’s confidential, so it could be the right option if your company would prefer to hide from your customers that you’re securing finance against their invoices. 

Spot factoring
Spot factoring allows you to borrow money against specific unpaid invoices rather than your sales ledger, so it’s also suitable for companies with at least a few large customers. The main difference with selective invoice discounting is that spot factoring is disclosed. You hand over control of the invoices you choose to finance to the lender who collects payment from your customer and forwards your company the balance less its fee. Spot factoring may suit SMEs that don’t have the resources to chase outstanding payments and are happy to let a lender take the responsibility on their behalf. 

Confidential invoice finance 
Confidential invoice finance is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. 
Confidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers. We’ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance. 

Confidential invoice factoring 
Confidential invoice factoring works like regular invoice factoring, where a lender advances your company money against unpaid invoices while taking over responsibility for credit collection and dealing with your customers. However, the key difference is it offers the same level of confidentiality as invoice discounting. 
Confidential invoice factoring doesn’t disclose you’re using invoice financing because the lender acts as your accounts department. That means the lender uses your company name and branding when it contacts your customers about outstanding payments. They also use a dedicated line which shows up as your company’s phone number when calling your customers.

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