Client Handles Own Credit Control (CHOCCS) is a method commonly used in the factoring and invoice discounting industry. Here’s a detailed overview:

Definition and Overview

CHOCCS (Client Handles Own Credit Control):

• Factoring: In traditional factoring, a business sells its accounts receivable to a third party (factor) at a discount. The factor then takes over the responsibility of collecting the receivables.
• CHOCCS: This is a variation where the client retains the responsibility for credit control and collections while still receiving the cash flow benefits of factoring. The factor provides the advance on the receivables but does not handle the collections.

Key Features

1. Client Control:

   • The client retains control over the credit control process, including invoicing, chasing payments, and dealing with customer queries. This can be beneficial for businesses that prefer to maintain direct relationships with their customers.

2. Cash Flow:

   • Like traditional factoring, CHOCCS provides businesses with immediate access to cash by advancing a percentage of the invoice value. This helps improve cash flow and working capital.

3. Discounted Rates:

   • Since the client handles credit control, the factor’s risk and administrative burden are reduced. This often results in lower fees or discounts compared to full-service factoring.

4. Flexibility:

   • Businesses can choose which invoices to factor and have the flexibility to manage their own credit control processes according to their specific needs and preferences.

5. Confidentiality:

   • CHOCCS can be more confidential compared to full-service factoring. Customers may not be aware that their invoices are being factored, as the client continues to manage the credit control process.

Advantages

• Cost-Effective: Lower fees due to reduced involvement of the factor in credit control.
• Control: Retains customer relationships and control over the collections process.
• Improved Cash Flow: Immediate access to funds without waiting for customers to pay.
• Confidentiality: Customers may not be aware of the factoring arrangement.

Disadvantages

• Responsibility: The client remains responsible for managing credit control and collections, which can be time-consuming.
• Risk: The business still bears the risk of bad debts if customers fail to pay.

Typical Users

• Small to Medium-Sized Enterprises (SMEs): Often use CHOCCS to improve cash flow while maintaining control over customer relationships.
• Businesses with Strong Credit Control: Those with efficient credit control processes may prefer CHOCCS to save on factoring fees.

How It Works

1. Agreement: The business enters into a CHOCCS agreement with a factoring company.
2. Invoice Submission: The business submits invoices to the factor.
3. Advance Payment: The factor advances a percentage of the invoice value to the business.
4. Credit Control: The business continues to manage credit control and collections.
5. Customer Payment: When the customer pays the invoice, the factor receives the payment and releases the remaining funds to the business, minus any fees.

Conclusion

CHOCCS provides a balance between maintaining control over customer relationships and improving cash flow. It is particularly suitable for businesses with robust credit control systems that want to avoid the higher costs associated with full-service factoring.