CHOCC

A CHOCC facility is one of the most popular forms of invoice finance. It is a hybrid type of facility and shares similarities of both invoice factoring and invoice discounting. 

CHOCC stands for client handles own credit control. As the name suggests, credit control stays with your business like it would with an invoice discounting facility.

    Invoice Finance

    Step 1

    You select which client invoices to send to a lender.

    Step 2

    You receive up to 90% of the gross invoice value.

    Invoice Finance

    Step 2

    You receive up to 90% of the gross invoice value.

    Invoice Finance

    Step 3

    The remaining 10% is made payable to your business minus any charges.

    Over

    Companies in the UK
    using Invoice Finance

    Over

    Billion invoices
    funded in the UK

    Over

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    Contact Business Finance

    What is a CHOCC facility?

    A CHOCC facility is one of the most popular forms of invoice finance. It is a hybrid type of facility and shares similarities of both invoice factoring and invoice discounting. CHOCC stands for client handles own credit control. As the name suggests, credit control stays with your business like it would with an invoice discounting facility. However, the facility is fully disclosed so the lenders details can be seen on your invoices, just like they do with an invoice factoring facility. To sum up, if you would like to maintain more relationships with your clients but are not too fussed about the facility being confidential, this is the facility for you.

    How does a CHOCC facility work?

    A CHOCC facility is a straightforward facility that allows you to release up to 90% of the gross invoice value, the same day you raise the invoice. Although lenders do not often advertise CHOCC facilities, most invoice factoring companies do offer this type of facility. The process is simple:

    1. You send your invoices to your clients as normal and forward a copy to an invoice finance lender
    2. They release up to 90% of the gross invoice value straight away
    3. Your business then conducts credit control and chases clients for when payments are due
    4. The remaining 10% is made payable to your business once your client pays, minus the lenders charges which are typically 1-2.5%

    Example

    Invoice Value £1,000 £5,000 £10,000
    Cash from the lender on day one (90%) £900 £4,500 £9,000
    Cash from the lender once client pays (10% minus fees) £85 £425 £850
    Lenders fee (based on 1.5%) £15 £75 £150

    How much does a CHOCC facility cost?

    A CHOCC facility can often be more competitive than a traditional invoice factoring facility. This is because the lender is not supplying credit control services. Like with all invoice finance facilities, the cost depends on turnover, industry and many other variables. Get in touch with us today to find out more.

    What are the advantages of a CHOCC facility?

    Improves your cash flow – A CHOCC facility allows you to grow your business by getting paid sooner. This allows your business to have constant cashflow and not have the ongoing concern about clients paying on time

    Credit control stays with you – this could give you a reason to pick up the phone and potentially get more work out of your client.

    Good cop / bad cop – chasing clients for payment who you have worked with for many years is sometimes an awkward conversation to have. With a CHOCC facility, you can pick up the phone to your client to see where they are with payment and even use the lender as a reason for the call.

    Potential discount from suppliers – A CHOCC facility can sometimes pay for itself. Now that you are getting paid sooner, you might be able to negotiate a discount with suppliers as you can pay them quicker and help their cashflow.

    Secure funding – as your business grows, so does your funding. Unlike a traditional loan, you can only borrow against cash that you are already owed by clients. Therefore, there is no risk on falling behind and defaulting on payments if your business is quiet.

    Release up to 90% of the invoice value – this is not only for future invoices, but you can also drawdown against your existing sales ledger if the invoices are not older than 90 days.

    Speed – you can release cash from an outstanding invoice on the same day. Therefore, you no longer have the negative impact on cashflow if clients do not pay on time.

    What are the disadvantages of a CHOCC facility?

    Notice of assignment – similar to an invoice factoring facility, your business will have to include the notice of assignment on the bottom of your invoices.

    Credit control – this function is not included and can take up more time than you think. This is when an invoice factoring facility could help.

    Cost savings – the savings between invoice factoring and a CHOCC facility are not huge. Therefore, you might want to consider an invoice factoring facility and pay slightly more fees if it saves you time.

    Terminology – not all lenders use the same terminology and call it a CHOCC facility. This can be confusing if you are new to the world of invoice finance. We can help you understand this financial jargon.

    Do all lenders offer CHOCC facilities?

    No, not all lenders off such a facility. This is why it is important using a broker that can put your business in contact with the most suitable lender from the outset and not waste any time.

    What type of business uses a CHOCC facility?

    Businesses that want to maintain all relationship with clients often take a CHOCC facility. Any business that raises an invoice to another business on credit terms can apply for a facility. Generally, we find that CHOCC facilities are for growing businesses that require that extra working capital to assist with cash flow, but do not want a lender chasing the invoice.

    How can my business apply for a CHOCC facility?

    Speak to Contact Business Finance today and we will put your business in contact with the list suitable lender.

    All we need to do is have a 15 minute conversation to find out more about your business and your funding requirements.

    Can I pick and choose which invoices to fund?

    Yes, there are certain facilities available that allows a business to pick and choose which client invoices to include in a facility. The rates are generally not as competitive for such a facility as there is less turnover going through the lender. However, it can be a useful short term cash flow solution.

    Can a CHOCC facility be more cost effective?

    A CHOCC facility can often be more cost effective that a factoring facility. This is because the lender is not having to provide a credit control service.

    Will my client know that I use a CHOCC facility?

    Yes, unlike invoice discounting a CHOCC facility is fully disclosed. Therefore, the lenders notice of assignment and bank details will appear at the bottom of your invoices.

    Is a CHOCC facility a good idea for my business?

    If your business could benefit from getting paid sooner and requires funding, but you want to keep credit control in house and are not fussed about the invoice finance facility being confidential. A CHOCC facility is certainly the right fit for your business. 

    What terms can I offer my clients?

    Any form of invoice finance allows you to offer extended credit terms to clients. This is often a great weapon to have in your armoury if you are a competing to win a contract. With a CHOCC facility, lenders will quite often lend against invoices for 120 days and sometimes more depending on what industry you operate in. Please note, you should not just offer extended credit terms to anyone. Part of any invoice finance facility can also include the lender doing in depth credit searches on your clients, so you can see what terms / limits are suitable to offer.