What is CHOCS for invoice finance?

Invoice finance can work in a number of different ways. Before we answer what is CHOCS for invoice finance it is worth recapping the two primary methods currently used when financing invoices: Invoice Discounting and Factoring. Here is a brief outline of each: Invoice Discounting:

• Suitable only for established companies with an annual turnover of £500,000+
• While the company retains control of their sales ledger, all invoices go through the finance provider and are funded whether finance is required or not
• It can be either confidential or disclosed
• This means it's very good for companies who are issuing a lot of invoices and want to manage their cash-flow on an ongoing basis

Factoring:

• Suitable for smaller companies and start-ups
• Minimum turnover requirement is much lower at about £50,000 pa
• Invoices and their collection is outsourced to the Factor company who then chase the debtor for the debt in their name (i.e. it's not confidential)
• Factoring can be done on a one-off basis and not every invoice needs to be financed allowing the client to utilise the facility as and when needed
• Factoring can be either recourse (i.e. when the debtor doesn't pay up, the customer becomes liable) or Non-recourse (i.e. bad debts are taken by the Factor company but this type of facility does, of course, cost more)

Both options have their merits but many companies would prefer to have an option that works like factoring in that they have no long term invoice finance commitment but still allows them chase the debtor for funds rather than having an external Factor company do it. This is possible and it's referred to as CHOCS which stands for 'Customer Handles Own Collections' and this allows the client to handle collection of the invoice but inly up to a point. If the invoice is not collected by a certain date the factor company do then have the right to step in and take over the collection process. CHOCS has a number of advantages:

1. The client retains a relationship with their debtors
2. Therefore the fact that a Factor is in the background can remain undisclosed
3. In the event of a potential bad debt, the client can still turn to the Factor company to aid with collection
4. Typically a CHOCS facility is more attainable than a normal invoice discounting facility because the eligibility criteria are less stringent.

In speaking about what is CHOCS for invoice finance it is also worth mentioning the online invoice auctioning platforms that are out there that operate along similar lines. If you are a credit worthy company with similarly credit worthy clients you can auction your invoices to the highest bigger, thereby achieving the lowest fee for you. This can be done regularly or on a one-off basis as you require and can even be anonymous - call us for details if you are interested. Choice Loans can help your business achieve invoice finance so to speak to an adviser today about your options please either call us on 0845 1260350 or complete our Invoice finance enquiry form here and we'll call you.