CHOCS
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Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in invoice finance
Welcome to our comprehensive guide on CHOCS (Customer Handles Own Collections) in the realm of invoice factoring.
This guide is designed to help you navigate the world of business finance, specifically focusing on CHOCS. So, whether you’re a seasoned business owner or just starting out, we’re here to help you understand and evaluate CHOCS and its alternatives.
What is CHOCS?
CHOCS, or Customer Handles Own Collections, is a type of invoice finance where the business maintains control over the collection of payments. Unlike traditional factoring where the factor company takes over the credit control, in CHOCS, you as the business owner, maintain the relationship with your customers.
How does it work?
In a CHOCS arrangement, your business issues invoices as usual and then presents them to the lender. The lender advances a percentage of the invoice value, often up to 85-90%. Once your customer pays the invoice, the remaining balance, minus the lender’s fee, is paid to you. The key point here is that your business is responsible for chasing and collecting payments, not the lender.
What are the benefits of CHOCS in Business Finance?
CHOCS offers several advantages. It provides immediate access to funds tied up in invoices, improving cash flow. As you handle your own collections, you maintain direct contact with your customers, preserving business relationships.
What are the potential downsides?
On the flip side, CHOCS requires you to have efficient credit control processes in place. If your customers are slow to pay, it could impact your cash flow. Also, lenders may charge higher fees for CHOCS compared to other invoice finance options due to the increased risk.
What are the advantages?
CHOCS can be a flexible financing solution, especially for businesses with strong credit control procedures. It can be a confidential invoice finance solution, meaning your customers may not need to know about your financing arrangements.
What are the disadvantages?
However, CHOCS may not be suitable for all businesses. If your business struggles with late payments or lacks robust credit control procedures, this type of invoice funding might not be the best option.
Is it a good idea?
Whether CHOCS is a good idea depends on your business’s specific circumstances. If you have strong credit control processes and value maintaining customer relationships, this type of finance could be a beneficial finance solution.
What are the key considerations?
When considering CHOCS, think about your business’s ability to manage credit control, your need for immediate cash flow, and the cost of the service. Using a finance calculator can help you evaluate the cost-effectiveness of CHOCS.
What are the alternatives?
Alternatives to CHOCS include traditional invoice factoring, where the factor company manages credit control, and selective invoice finance, where you choose which invoices to finance.
Other options could include business loans or sector-specific funding schemes. It’s always recommended to explore all options and consult with an independent business finance expert before making a decision.
How does invoice factoring relate to CHOCS?
Invoice factoring and CHOCS are both methods of invoice finance, a way for businesses to access funds tied up in unpaid invoices.
The key difference lies in who handles the credit control. In traditional invoice factoring, the factor company takes over the credit control, chasing and collecting payments from your customers. However, with CHOCS, your business retains control of this process.
This means you continue to manage your customer relationships directly, which can be a significant advantage for businesses that value these relationships.
Related Products
In addition to CHOCS, there are several other finance products that businesses might consider. These include:
- Invoice Discounting: Similar to CHOCS, invoice discounting allows businesses to access funds tied up in unpaid invoices. However, it’s typically a confidential service, meaning your customers aren’t aware of the arrangement.
- Business Loans: A more traditional form of finance, business loans provide a lump sum of cash that you repay over a set period. They can be secured or unsecured, depending on whether you provide property or other assets as collateral.
- Asset Finance: This involves using company assets, such as equipment or vehicles, to secure funding. It can be a useful option for businesses with significant physical assets.
- Commercial Mortgages: If you’re looking to purchase property for your business, a commercial mortgage could be an option. These work similarly to personal mortgages but are designed for business property.
Keep reading – CHOCC.
Invoice Discounting vs CHOCS
Invoice discounting and CHOCS are both types of invoice finance, but they operate slightly differently. With invoice discounting, your business issues invoices as usual, and the lender provides an advance on the invoice value.
The key difference is that invoice discounting is typically a confidential service. This means your customers aren’t aware that you’re using a finance service, as you continue to handle your own credit control and collections, just like with customer handles own collections invoice finance.
However, invoice discounting often requires a higher turnover than CHOCS and may not be available to smaller businesses or startups. It’s also worth noting that while both services can improve cash flow, the cost, terms, and eligibility criteria can vary between lenders. Therefore, it’s always a good idea to use a finance calculator and seek independent advice to determine which option is more cost-effective for your business.
Factoring vs CHOCS
Factoring, like CHOCS, is a form of invoice finance. The primary difference lies in who handles the credit control. In a factoring arrangement, the factor company takes over your credit control.
They chase and collect payments from your customers, which can save you time and resources.
However, this also means your customers are aware you’re using a factoring service, which may not be ideal for all businesses.
With customer handles own collections invoice financing, you retain control over your credit control, maintaining direct contact with your customers. This can be beneficial if you have strong relationships with your customers and prefer to manage collections yourself.
Again, the best choice between factoring and CHOCS depends on your business’s specific needs and circumstances. Consider factors like the cost of the service, your ability to manage credit control, and the potential impact on customer relationships. And remember, an independent business finance expert can provide va ABC Finance Ltd.
Frequently Asked Questions
We understand that the world of business finance can be complex, and you may have a few questions. Here, we’ve compiled some frequently asked questions to help clarify things.
How does CHOCS work in invoice finance?
In the context of invoice finance for business, customer handles own collections allows your business to receive an advance on your issued invoices from a lender, while you retain control of collecting payments from your customers.
This means you get the cash flow benefits of invoice finance, but maintain your customer relationships.
How does it relate to customer collections?
With CHOCS, your business handles its own collections. This means you and your business is responsible for chasing and collecting payments from your customers.
This can be an advantage if you have strong customer relationships and effective credit control processes and will make you popular with your invoice finance provide.
What makes this type of Finance a good choice for my business?
CHOCS can be a good choice if you need to improve cash flow but want to maintain control over customer collections.
It’s also beneficial if you have strong credit control processes in place and prefer a finance solution that doesn’t disclose your use of a finance service to your customers.
How does Customer Handles Own Collections compare to other invoice finance options?
CHOCS is one of several invoice finance options. It’s similar to invoice discounting in that you maintain control over customer collections, but it’s typically more accessible to smaller businesses.
Compared to factoring, customer handles own collections gives you more control over customer relationships but requires you to handle your own credit control.
The best choice depends on your business’s specific needs and circumstances.
