CHOCC
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Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in invoice finance
Welcome to the world of CHOCC – Customer Handles Own Credit Control.
In this comprehensive guide, we’ll be taking a deep dive into what CHOCC is, how it compares to factoring and confidential invoice discounting, and why it might just be the business finance solution you’ve been searching for.
What are CHOCC Facilities?
CHOCC, or Customer Handles Own Credit Control, is a unique form of invoice finance where the business retains control over their credit control processes. Unlike traditional factoring facilities, where the service provider takes over the responsibility of collecting payments from clients, CHOCC facilities allow businesses to maintain their customer relationships directly.
In a CHOCC facility, the business issues invoices as usual and then presents a copy of the gross invoice to the finance provider. The provider then advances a percentage of the invoice value, providing the business with immediate cash flow. The business then collects payment from their clients as usual and repays the finance provider once the invoice is paid in full.
This approach to business funding is particularly appealing to businesses that prefer to manage their own credit control, offering the benefits of invoice finance without the need to outsource their customer interactions.
CHOCC vs Invoice Factoring and Confidential Invoice Discounting
Now that we’ve established a clear understanding of what CHOCC is, let’s delve into how it compares to other forms of invoice finance, specifically factoring and confidential invoice discounting.
Factoring, like CHOCC, is a form of invoice finance. However, in a factoring facility, the factoring company takes over the credit control function. This means they handle the collection of payments from your clients. While this can free up time for the business, it also means that the factoring company has direct contact with your clients, which may not be suitable for all businesses.
On the other hand, confidential invoice discounting is similar to CHOCC in that the business retains control of their credit control. However, unlike CHOCC, confidential invoice discounting is typically undisclosed to clients. This means that clients are unaware of the business’s arrangement with the finance provider.
In comparison, CHOCC provides a middle ground. It offers the cash flow benefits of invoice finance, while allowing businesses to maintain direct control over their customer relationships. This makes CHOCC a compelling choice for businesses seeking flexible finance solutions that fit seamlessly into their existing operations.
Stay tuned as we delve deeper into the advantages and disadvantages of CHOCC, and explore whether a CHOCC invoice finance facility could be the right choice for your business.
What are the advantages?
As we journey further into the world of CHOCC, it’s essential to understand the benefits this unique form of invoice finance can offer your business. Here are some of the key advantages:
Improved Cash Flow
With this type of facility, you can access the cash tied up in your invoices almost immediately. This can significantly improve your business’s cash flow, enabling you to meet operational costs, invest in growth opportunities, or simply manage your finances more effectively.
Maintained Customer Relationships
Unlike a traditional factoring facility, where the provider takes over credit control, CHOCC allows you to maintain direct contact with your clients. This can help preserve and strengthen your customer relationships.
Flexibility
These facilities are typically flexible, adjusting to your business’s needs and growth. As your invoice volume increases, so does the amount of funding you can access.
Potential Cost Savings
By handling your own credit control, you may be able to save on the service fees associated with outsourcing this function to a factoring company.
What are the disadvantages?
While these financial products offer numerous benefits, it’s also important to consider the potential drawbacks:
Increased Administrative Burden
With this type of invoice financing, the responsibility for credit control remains with your business. This means you’ll need to allocate resources to chasing payments and managing client relationships.
Potential Impact on Cash Flow
If your clients are slow to pay, this could impact your cash flow. Unlike with a factoring facility, where the provider assumes the risk of late payments, with CHOCC, the risk remains with your business.
Transparency
Unlike confidential invoice discounting, CHOCC is not a hidden service. Your clients will be aware that you’re using a finance service, which may not be desirable for all businesses.
Keep reading – Accounts receivable factoring or CHOCS.
Is a CHOCC invoice finance facility a good idea?
Whether a CHOCC facility is a good fit for your business depends on your specific circumstances and needs. If maintaining direct control over your customer relationships is important to you, and you have the resources to manage your own credit control effectively, then this could be a great solution. It offers the cash flow benefits of invoice finance, without the need to outsource your credit control.
However, if you’re concerned about the administrative burden of managing your own credit control, or if you prefer the confidentiality offered by invoice discounting, then other forms of invoice finance may be more suitable.
What are the key considerations?
When considering a CHOCC facility, there are several key factors to keep in mind:
- Your Ability to Manage Credit Control: Do you have the resources and systems in place to effectively manage your own credit control? If not, you may need to consider this before opting for a CHOCC facility.
- Your Customer Relationships: How will your customers react to knowing you’re using a finance service? For some businesses, this transparency can be a positive thing, but for others, it may not be ideal.
- Your Cash Flow Needs: How quickly do you need to access the cash tied up in your invoices? CHOCC can provide fast access to funds, but if your clients are slow to pay, this could impact your cash flow.
- Cost: While they can potentially offer cost savings compared to other forms of invoice finance, it’s important to fully understand the fees and charges associated with the service.
Stay tuned as we delve deeper into the alternatives and explore the world of invoice finance even further.
What are the alternatives?
While CHOCC offers a unique blend of benefits, it’s not the only game in town when it comes to invoice finance. Let’s take a look at some of the alternatives:
- Invoice Factoring: This is a type of invoice finance where a business sells its invoices to a factoring company. The factoring company takes over the credit control, chasing and collecting payments directly from the clients. This can free up time for the business, but it also means the factoring company has direct contact with your clients.
- Invoice Discounting: This is another form of invoice finance where the business retains control of their credit control, similar to CHOCC. However, unlike CHOCC, invoice discounting is typically undisclosed to clients. This means that clients are unaware of the business’s arrangement with the finance provider.
- Business Loans: Traditional business loans can also provide the funding needed to grow your business. However, unlike invoice finance, business loans are not tied to your invoices and may require collateral.
Frequently Asked Questions
Here are some of the questions that we’re often asked about this type of business finance.
How much does a CHOCC facility cost?
The cost of a CHOCC facility can vary depending on a number of factors, including the volume of invoices, the industry your business operates in, and the specific terms of the finance provider.
Typically, a CHOCC facility can be more competitive than a traditional factoring facility, as the lender is not providing credit control services.
However, it’s important to fully understand all the fees and charges associated with the service before making a decision.
How much money can I get through an Invoice Finance facility?
The amount of money you can access through an invoice finance facility, including a CHOCC facility, depends on the value of your invoices and the specific terms of the finance provider. Most lenders can advance up to 90% of your invoice value, providing immediate cash flow for your business.
However, the exact amount will depend on your individual circumstances, including your industry and the creditworthiness of your clients.
As we continue our journey into the world of CHOCC and invoice finance, stay tuned for more insights and information to help you make the best decision for your business finance needs.
How long does it take to arrange an Invoice Finance facility?
The time it takes to set up an invoice finance facility, including a CHOCC facility, can vary. However, in the world of business finance, time is often of the essence, and many providers understand this. Generally, the process can be completed in as little as a few days, although it can take longer depending on the specifics of your business and the finance provider.
Here’s a general step-by-step breakdown of the process:
- Initial Consultation: This is where you’ll discuss your business’s needs and circumstances with the finance provider. They’ll explain how their service works and what they can offer you.
- Application: You’ll need to fill out an application and provide any necessary documentation. This could include financial statements, details of your invoices, and information about your clients.
- Approval: Once your application is submitted, the finance provider will review it and make a decision. This can sometimes be done in as little as 24 hours.
- Funds Transfer: Once approved, the finance provider will advance a percentage of your invoice value, providing you with the cash flow you need.
Remember, every finance provider is different, and the exact timeline can vary.
Am I eligible for an Invoice Finance facility?
Eligibility for an invoice finance facility, including a CHOCC facility, can vary from one finance provider to another. However, there are some common criteria that many providers look for:
- Business Status: You need to be a registered business. This can include sole traders, partnerships, and limited companies.
- Invoice Volume: Many providers require a minimum invoice volume or turnover. This can vary, but it’s often around £100k.
- Industry: Some industries are more suited to invoice finance than others. Businesses that issue invoices to other businesses (B2B) are typically a good fit.
- Credit Control: For a CHOCC facility, you’ll need to demonstrate that you have effective credit control processes in place, as you’ll be responsible for collecting payments from your clients.
Remember, these are general guidelines and the specific criteria can vary. It’s always best to discuss your eligibility with the finance provider directly.
How does a CHOCC facility work?
It is a unique blend of invoice factoring and discounting. Here’s a step-by-step breakdown of how it works:
- Invoice Issuance: You issue invoices to your clients as usual.
- Invoice Presentation: You present a copy of the gross invoice to the CHOCC facility provider.
- Funds Advance: The provider advances a percentage of the invoice value, providing you with immediate cash flow.
- Payment Collection: You collect payment from your clients as usual.
- Repayment: Once the invoice is paid in full, you repay the finance provider.
The key difference between a this type of invoice finance facility and other forms of invoice finance is that with CHOCC, you maintain control over your credit control.
This means you’re responsible for chasing payments and managing your client relationships, offering a more hands-on approach to managing your business finance.
