Customer Handles Own Collections - CHOCs
CHOCs may sound like a type of confectionery, but the acronym "CHOCs" is widely used in the invoice finance sector and has nothing to do with chocolate. It means the Customer Handles Own Collections and may sometimes be called CHOCCs (Customer Handles Own Credit Control), which describes the same type of facility.
What Is CHOCs?
This type of facility provides finance against invoices while allowing the user to continue handling their own credit control. This can be important if you want to retain control of your customer relationships.
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It is a less common form of receivables finance in which the finance company maintains a full open-item shadow sales ledger (usually), while the customer undertakes the credit control activity, i.e., chases customers for payment. As a product, it sits somewhere between invoice discounting and factoring.
For more general information about the full range of products, see our Invoice Finance page.
CHOCs - Customer Handles Own Collections
The facility is disclosed, so that invoices bear an assignment clause and debtors are given notice of assignment. This gives the funder a more secure position, as their ownership of the debts has been disclosed to the end customers. In view of this, CHOCs may be suitable for customers who might not qualify for a confidential facility but want to control contact with their customers, rather than opting for factoring, where the funders undertake the credit-control activity on their behalf. CHOCs can be cheaper than factoring because of this difference.
Users will need to have adequate credit control procedures in place in order to be eligible.
See this case study about how we found this type of funding for a building restorer.
Shadow Ledger Explained & Further Resources
Shadow ledger explained - a "shadow ledger" is when the funder maintains a copy sales ledger for their use. It is composed of a snapshot of all the invoices outstanding at the time of "take-on" (when the facility starts), and new invoices, credit notes and payments are applied to the ledger as they are raised or received. It means that should anything happen that causes the funder to need to collect the invoices, e.g. failure of the client's business, they have the sales ledger already set up and ready to go - this gives them a slightly greater level of security, which can be helpful in offering funding to some businesses.
The alternative is what is referred to as a "bulk" facility. In these cases, the funder only maintains control balances to track movements in the overall value of the sales ledger i.e. without the open item granularity.
Case Studies About CHOCs Facilities
These are some further case studies about how these facilities have helped clients:
Case Study 1 - CHOCS To Replace An Overdraft
Case Study 2 - CHOCs Arranged For A UK Drinks Importer From An Independent Provider
